One important thing to remember about the CBOE Volatility Index (VIX) is that all VIXes are not created equal. By that I mean today's 15 VIX isn't necessarily the same as yesterday's 15 VIX.

VIX proxies implied volatility on the S&P 500 Index (SPX). Any implied volatility measure of an index has two base components. One is the implied volatility of the component stocks. The higher the implied vol of the components, the higher the implied vol of the index -- that's pretty self-explanatory. Two is the degree to which the components are correlating with one another. If the stocks are all moving in different directions and magnitudes, then the moves will offset each other and the index itself will not be that volatile.

I bring this up because, well, VIX has tanked lately. And, per Michael Khouw, it looks like we can blame "Factor 2":

"The one-month implied correlation is below 30%, well below the average of over 40% we've seen over the past couple years. What that is telling us is that the options market believes we are in a stock picker's market. Rather than simply buying an index, one who chooses individual longs (and shorts, if you make bearish bets too) wisely may find the coming quarter to be more rewarding. To me it also suggests that index portfolio hedges, using things like SPY or QQQ put spreads are reasonably priced and individual stocks are likely to provide more attractive opportunities for buy-writes and naked put sales."

Fund guys on TV tend to call everything a stock picker's market, but there's a bit of "talking your book" there. If it's not a stock picker's market, then everyone can just index, and they don't provide much of anything resembling a value-add.

In the options world, it has meaningful implications. Larger players effectively always have positions that bet on dispersion. If you're net long gamma in individual names and short gamma in indexes, you are betting on dispersion. You want low correlation and relatively low index volatility. Best case is every option in your portfolio goes bananas, but in an uncorrelated way to all the others. You then hedge or ride your long gamma in the individual names and give back a little in your index vol short, and party like it's 1999 (pretty much the golden age for this sort of trade).

At times of high correlation, the dispersion trade doesn't work so well. The underlying index itself moves too far directionally.

If you expect correlation to remain low, then what he says above is correct. Options-selling strategies in indexes will look relatively attractive. But will this correlation last? My friend and fellow Mets fan Elliot Turner has a good question.

@agwarner Is implied correlation usually this degree lower in the month of peak earnings season?

— Elliot Turner (@ElliotTurn) October 27, 2015

Correlation is imperfect to compare over time. The CBOE has three rotating correlation indexes. Short answer is, the duration isn't constant. Long answer is, it's going to take a full post to explain. For the purposes of today's topic, it's a good observation -- you'd think earnings season would lead to lower correlation. But that hasn't really been the case; there's no noteworthy correlation dips at peak earnings time. Perhaps that's because these are measures of implied volatilty (anticipation) rather than the direction and magnitude the individual names ultimately move. Thus, I do think the lower anticipated correlation goes beyond earnings season.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

Time to party like it's… a few months ago! Either that or it's time to take another gander at a few charts and random data points we've monitored a bit since the August-September volatility extravaganza. 

CBOE Volatility Index (VIX) futures have that Old Contango Feeling again: 

 

If that chart looks like the VIX term structure from [pick a date, almost any date in the last six years], that's because it does look like it always looks. The slope's the same as on Aug. 19, just before the market started getting plowed, but the absolute levels are a bit different: 

 

We're more or less a point higher all across the board. To me, it's more the after-effect of the VIX pop than any sort of "smart" prediction about the actual VIX future. Remember, futures tend to lag a bit in their mean-reversion "responsibilities." They do a better job telling us what already happened than what's going to happen next.

CNN's Fear and Greed is now… greedy!

 

 

My favorite driver is Stock Price Breadth. Back a couple of months ago, the McClellan Volume Summation Index was the trendy indicator pointing us to certain doom. Now? Not so much. 

During the last month, approximately 4.67% more of each day's volume has traded in advancing issues than in declining issues, pushing this indicator towards the upper end of its range for the last two years. 

For what it's worth, the market volatility component has only dropped back to "Neutral." Greed levels overall are back to mid-spring readings. 

And finally, our percentage of S&P 500 Index (SPX) stocks above their 200-day moving average (MA):

 

Nice move off the lows, but still damage here in the individual names. We're at 45% vs. 55% before the August swoon. It's likely a tough comp, as many 200-day MAs are still sloping up. 

Anecdotally, we don't have one of those overpublicized stories right now; no Greece or China or Volkswagen, relative indifference to the possibility that the Fed might raise rates someday, et. al. I'm sure some Biggest Story Ever will crop up again, but for now we're inundated more with FanDuel ads than hyper-concerns. 

All in all, internals are better and the Blahs are back… but this time, I'm not going to complain about it. 

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

Has the CBOE Volatility Index (VIX) gone down too far, too fast? Seeking Alpha asks:  

Volatility Update: 40% Plunge For VIX = Market Vulnerability? 

"The S&P 500 (SPX) staged a nearly 7% rally in the first three weeks of October - action that crushed several measures of stock and commodities. 

… The broad stock market mood measure, the CBOE Volatility Index (VIX), dropped some 40% month to date through Friday. VIX recently dropped to two-month lows and to levels not seen since before a major spike in late August. Recall that the volatility index hit an extreme of 53.29 during the panic market sell-off of August 24. Just a few weeks earlier, VIX was at the lower end of the 2015 range and had hit 52-week lows below 11." 

OK, I'll take the bait. No, it doesn't signal anything in particular, in terms of market vulnerability. In fact, the writer basically answered the question right there. VIX is down 40% precisely because the market lifted the 7%. 

That's a VIX Move/SPDR S&P 500 ETF (SPY) Move ratio of about 5.71. And that's very much in line with history, as well as behavior we've seen in 2015. 

Over the course of forever, VIX has moved about -3.85 the move in SPY in a typical day. But that relationship has trended stronger over time, particularly this year. For 2015, that ratio has spiked to -7.92. 

Here's a chart of the rolling 20-day ratio this year: 

Remember, this is a negative relationship, so lower is actually stronger. And as you can see, this actually peaked a few weeks ahead of the market melt. In other words, VIX got very reactive to SPY moves in the month or so preceding the market dip. Since then, it's actually trended less reactive, though that trend has flatlined in October as the market has spiked. 

What's more, implied volatility (IV) is very much in line with realized volatility (RV). The 10-day RV in SPY is about 12 now; we're at a very normal premium. 

I'd only worry about VIX here if you're predisposed to want to worry about something. I mean, we've had a nice rally -- it's natural to expect a pause. I just don't think the VIX in any way, shape, or form is suggesting anything of that sort right now. 

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

So, we all know exceptional CBOE Volatility Index (VIX) pops tend to mean-revert over time, and often produce decent entry points for fade trades. With exceptions, of course, as sometimes the "fade" works spectacularly poorly. See 2008, for example, and also 2011 in a smaller way.

The theory is that the extreme in emotion on the fear side tends to reverse. The inverse isn't particularly true. Extreme complacency is kind of an oxymoron and not a great market driver, as we saw early last week. But hey, that's my opinion, and I only looked at it relative to the moving averages ... and I only looked at one-month and three-month windows. That's far from the definitive word on the topic. Dana Lyons takes a different look at it:

"We originally searched for all occasions in which the VIX first returned to below 20 after having spiked above 40. Upon looking, however, we noticed that there were a few near-misses that would be interesting if included. Therefore, we adjusted our search for spikes above 37. Yes, this is pure data-mining, and we pride ourselves on avoiding such gimmicks. After all, our ultimate goal is to make our clients more money. Thus, mining for trivial data points is a waste of our time. This study certainly falls into that trap, however, we think the results are interesting enough to publish – and may serve a valuable lesson too."

He came up with 13 distinct instances. And his results were quite mixed, to say the least:

"...The most interesting thing is that this signal was not at all a consistent harbinger of calmer, happier times for stocks. In fact, in the longer-term, i.e., 1-year out, this signal was the opposite of consistent. The results were binary. They were like Babe Ruth's batting output: a home run or a strike out, all or none.

"Of the 13 prior signals, 8 led to 1-year gains between +10% and +22%. The other 5 resulted in 1-year losses of between -12% and -40%."

He found the key to which way it went was whether the market itself was shifting into a higher vol backdrop. I call those "regimes," as in now we're at the tail end of a low-vol regime. These regimes are somewhat loosely defined, and last about four to six years. We're going to see a higher median vol this year than last year, which I'd suggest is a sign we're starting to gradually morph into a higher-vol regime. So, perhaps this was a warning shot of higher vol to come?

More likely, though, it's just a data point along the way that's not going to signal much of anything. The August VIX pop was at record speed in percentage terms, and it had an unprecedented stretch above its 10-day moving average. So it's not shocking that we saw a rather large drop back. "Fair" VIX, of course, changes over time. But that's over a relatively long frame of time. It doesn't tend to double in a couple days and then just stay at that new high level. As such, the drop back is better thought of as a return to the mean, IMHO, than much of a signal, and his work seems to agree with that thesis.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research

Even though we've seen a fairly volatile market in 2015, the net-net isn't all that impressive. We've made a somewhat noisy move to basically nowhere in 2015. It sure feels like a year where you could have added value by trading and/or more aggressively managing longer-term positions.

But alas, all trading/tweaking is not created equal. I periodically look at the Barclays S&P VEQTOR ETN (VQT), not because I find it a particularly compelling investment vehicle, but rather because it provides an interesting window into a volatility hedging strategy. Just to refresh:

"VQT's dynamic strategy aims to provide maximum equity exposure, via the S&P 500 in good times, and hedge its equity exposure in periods of high volatility. The underlying index adjusts its allocation to the S&P 500 and the S&P 500 VIX Futures Index based on 1-month realized volatility and forward implied volatility. In addition, the index moves to a full nominal cash allocation if it falls by more than 2% over 5 consecutive trading days."

In plainer English, it basically owns the SPDR S&P 500 ETF (SPY) until volatility picks up, then hedges with CBOE Volatility (VIX) futures until the market dips too much, at which point it goes to all cash. It will logically underperform in rallies and outperform (lose less) in declines. But what about a year when we're basically flat? Not good. Here's VQT in 2015 vs. the S&P 500 Index (SPX)​:

It's down 9% vs. SPX up 1.5%. I understand some underperformance this year in a fund with a strategy that essentially cuts back into weakness and then finds itself underinvested/overhedged when the market rallies. But that's some extreme underperformance. And it's really not in the time frame I would have expected.

VQT presumably got into cash at/near the bottom(s) in August/September. And as you can see above, it did in fact underperform the October rally. But that's not when the bulk of the underperformance hit. Rather, the damage was really done earlier in the year, from March right up into the August dip. Here's how that time frame looks:

And that's what I don't get. There wasn't much in the way of vol. spikes. We had a relatively modest one in June, and that was about it until mid-August. VQT should have basically just held SPX-ish (they don't hold the exact index).

I don't like the idea of owning something like this just because it's relatively easily to replicate the concept. To me, it's better to customize it to your own risk tolerance. But this is just ridiculous to underperform so badly in a five-month churn, and to me calls into question the strategy. It sidestepped the dip, of course, but at a pretty large cost. And even saying it sidestepped the dip is misleading. Even at the market's worst, SPX still lost less than VQT. All the dip did was briefly drag SPX down to VQT levels.

Want a better idea? Just buy and roll some cheap dollar out-of-the-money (OOTM) index puts. Or put on collars (long OOTM puts vs. short OOTM calls). Simple is often better.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research

You may or may not have noticed a new friend on your trading screens this past month: CBOE Volatility Index (VIX) weeklys! Yes, you can now trade options on VIX weekly futures, meaning you can basically play VIX in every way, in every time frame. The quotes show up on regular VIX options screens. How have they fared? Pretty well, says Matt Moran of the Chicago Board Options Exchange (CBOE):

"Average daily volume for the new VIX® Weeklys options was a strong 25,042 contracts in October, the first month of trading for the products. Prior to last month, the VIX options had expirations only once a month, but now with VIX Weeklys options there usually are VIX options expirations in at least the first four weeks."

Is that a lot? Well, it's a tough comp. As I look at the screen now, the biggest single near-money series I see actually is a weekly. Over 4,000 November 15 calls that expire in a week have traded. But in VIX, the biggest plays are in significantly out-of-the-money (OOTM) calls. Open interest in the "regular" November 20 calls is 329,000, and open interest in the "regular" November 30s is 352,000. You're just not going to get plays like that in weeklys, mainly because they are all VIX lottery tickets that don't have much likelihood of getting near the money in the very short term. They all go for very cheap dollars, so why not buy a little more time? That seems like the perpetual operating theory on the VIX board.

But having said that, VIX weeklys are a great idea. I'm always in favor of just listing everything you can on an options board. The more strikes and expirations, the merrier! The weeklys let you speculate on the VIX here and now. Always. And frankly, that's how everyone should play VIX.

OOTM VIX calls are forever wildly overpriced. VIX doesn't pop as often or in as sustained a way as financial media would have us believe. We get maybe three to five serious VIX blasts a year. Most dissipate quickly. They're difficult to time, as in you can often buy calls three months out and never see them get anywhere close.

And VIX futures don't come close to fully tracking VIX pops, as there's always an initial assumption of mean reversion. It's fun and profitable to see way OOTM calls explode exponentially in value, but it's a relatively infrequent event and, net-net, it's not a great play, in my opinion.

The plus side of weeklys is that they're going to encourage plays with better odds of success. There is a downside, though: The quotes are wider. "Regular" VIX OOTM calls are almost all 0.05 wide, bid to ask. Weeklys are more like 0.15 wide. That's a huge edge to give away ... you can make a living just trading as a market maker against order flow on a 0.15-wide quote. I'd still use the weeklys, just avoid entering market orders.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research

Is the CBOE Volatility Index (VIX) low or high? Is it moving too much vs. stocks or too little? Does a strong VIX mean certain doom, or is it signalling too much fear?

What if I told you I could answer all those questions with a "yes," even though they essentially all contradict each other? I'd note that it's the time frame that really matters for all the above.

Is VIX low? Well, it has a 15 full now. The all-time median is 18.21. Even the "Low VIX Regime" median is 17.10 -- at least in this current regime, which I start in July 2009. It's even low vs. 2015; this year's median is 16.56.

But VIX isn't low vs. realized volatility (RV). Ten-day RV in the S&P 500 Index (SPX) is about 10.3, so options are already ahead of the next volatility pop.

A lot of that modest overpricing is thanks to the fact that VIX has outperformed the market lately. By that, I mean it's overreacting to small market dips. The SPDR S&P 500 ETF Trust (SPY) dropped 0.27% on Wednesday. VIX has typically moved about -6x SPY in recent months, which suggests a pop of something like 1.8% on Wednesday -- yet it actually popped 6.67%.

These relationships are noisy and imperfect. VIX lifts *more* on Mondays, lifts ahead of anticipated news, et. al. But we didn’t have any of that. Wednesday has no "Day of Week" effect, and there was no real anticipated market news (no, Facebook isn’t going to move market vol). If anything, Wednesday itself saw actual news that the market often cares about: Fed Chair Janet Yellen commented on the possibility of a December rate hike! If anything, this backdrop suggests VIX underperformance, yet we saw the opposite.

If I carefully choose a time frame, I can "prove" VIX is wildly outperforming. It's up 10% since Oct. 23, while the market itself is up about 1.5%.

So finally, does this bode badly for the market on a smart-money sort of thesis, or is it simply too much fear and a bullish contra tell?

Again, results are mixed and inclusive. I ran 20-day rolling averages of the VIX Move/SPY Move ratio, and then correlated it to one-month forward SPY returns to see if there was any predictiveness about the VIX/SPY relationship. And I found virtually no relationship. The correlation was 0.0147 -- the definition of non-correlated.

I'd guess that the modest recent VIX strength is a bit of a counter reaction to the overall VIX drop since the August spike. Hey, VIX must be "cheap" now since it was so much higher not that long ago! But the truth is, it's only cheap if you narrowly define it, and the very recent strength isn't all that predictive.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research

So, I wanted to look a little deeper into the question of whether CBOE Volatility Index (VIX) outperformance vs. expectations is at all predictive of future market performance. My short answer -- from anecdotal experience and from the post I had last week on the topic -- was "no." My longer answer after looking at it in greater depth is still no, but I'd leave open the possibility that different methodology might lead to a different conclusion.

Let me explain how I went about it. I defined VIX expectations in an adjustable linear fashion. In other words, X% move in the SPDR S&P 500 ETF Trust (SPY) should lead to Y% move in VIX. I'll call the multiplier Z. But I keep Z a variable; specifically, it's the 20-day rolling average mutliplier. For example, right now the 20-day linear multiplier is about negative 6. If SPY lifts 1%, it suggests VIX should drop 6%. But let's say VIX only drops 3%. I'd score that as a +3% outperformance for VIX.

Over time, that negative 6x multiplier varies. I always use the current multiplier to put VIX in context. I also chose to use addition and subtraction to define VIX overperformance and underperformance. There's probably a good case to use standard deviation instead. My concern was it would overstate VIX deviations on tiny market moves.

Yada yada yada. I came up a "VIX vs. expected VIX" number for every day going back to the start of SPY in 1993, and then correlated it to SPY performance going one month forward from each day, just as a basic way to see if there was any sort of relationship.

And the answer was -- well, I gave you the answer already. The correlation is about negative 0.015, or about as random and uncorrelated as possible. If I filter it down to only the biggest 10% of VIX deviations, the results don't change all that much. The correlation goes all the way up to negative 0.049. VIX overperformance is ever-so-slightly bullish, but it's not statistically significant.

But alas, there's an oddity that's not particular surprising. Many of the days of VIX outperformance were days that saw big up moves in the market. The top four days are March 8, 1993 (SPY up 2.23%), Aug. 26, 2015 (SPY up 3.86%), Oct. 28, 1997 (SPY up 5.77%), and May 5, 1997 (SPY up 2.37%). What's really happening on those days is that VIX is "outperforming" by simply not dropping as much as the market pop would suggest. And that makes some sense. Remember, it's a volatility index, not a contra-market index. These are days of high volatility and likely many a short squeeze. There's some big downside days thrown in, as well, which is probably more of a case of VIX going "exponential" on very ugly days.

So I ran the numbers again, but deleted days where SPY rose or dropped 2% or greater. That lopped almost 10% of all trading days out, which was more than I expected, honestly.

And the results? Still scant correlation. It measures negative 0.0103. Even if I just look at the 100 biggest VIX outperformance days on sessions with SPY moving under 2%, correlation goes all the way up to ... negative 0.0779.

Long story short, I'm not looking further into this for now. Lots of people have opinions on what VIX "should" do on a given day or week or month. They define "should" very subjectively. I attempted to at least put some objective context to it, and came up with really nothing to suggest contextualizing VIX to its expectations will predict much in the way of future market moves.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

Looking to pay someone to access his CBOE Volatility Index (VIX) exchange-traded fund (ETF) bot? Well, there's this:

"Based on 17 years of experience, I created an algorithm that's giving me a 60.87% hit rate trading XIV, SVXY, VXX, TVIX, and UVXY.

"My Algorithm VRP+T4TM is Providing Returns of 193.67% YTD

"With access to my algorithm, you can trade volatility ETPs like a professional and confidently reduce the emotional toll of trading."

Or if not, there's this:

I don't need to pay for fancy algorithms. Contango I'm short. Backwards I'm flat or long. https://t.co/UqMPKoT0tK

— selling_theta (@selling_theta) November 9, 2015

I've never seen this first guy's algo, or evidence of his returns. He may have a great product -- though I'm always leery of someone trying to sell silly-great returns. If you can book those kind of returns, why share the secret with anyone? But I'm going to stick with @selling_theta here.

As we well know, the long VIX ETF complex struggles when the VIX futures curve is in contango. In such a setup, the iPath S&P 500 VIX Short-Term Futures ETN (VXX) loses money over time, and leveraged trackers like the ProShares Trust Ultra VIX Short Term Futures ETF (UVXY) and VelocityShares Daily 2X VIX Short-Term ETN (TVIX) face pressure from the contango -- the compounding effects that hit all trackers, and the impact of leveraging all that.

When the VIX curve is in backwardation, the whole equation flips the other way. The passage of time now helps VXX. And if VXX is going one way and up, the compounding and leverage now give UVXY an extra bump.

So, yes, the simple principle of trading VXX and friends off the short side when VIX futures are in contango -- and flattening or going long when it's in backwardation -- is probably as good a guideline as any.

I would never go straight long VXX though. By definition, you'd have to do it while VIX futures are flying and that's not exactly the timing I'd prefer. I can see going long VXX vs. long stock futures or ETFs, as a pair -- though at times of backwardation, particularly early in the flip to backwardation. Remember that the whole VIX board always builds in assumptions of future mean reversion. When stocks get hit and VIX itself starts to pop, VIX futures will lag at first. Think about what we saw in August, for example. There's some opportunity there to buy VXX (or something like it) vs. stocks. If the sell-off persists, VXX figures to outperform going forward from there, as the VIX futures start to catch up to the new "mean." If the sell-off reverses -- well, VXX won't do well, but the stocks will. It's a de facto gamma long play, minus the decay of actual options at ramped vol.

I'm not guaranteeing any sort of returns on that, or even that it will work! Specifics matter. It's just a conceptual idea.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

Our long national CBOE Volatility Index (VIX) nightmare is over: We're overbought again! By overbought, I mean VIX closed 25.6% above its 10-day simple moving average (SMA). I use >20% over the SMA as a threshold. Just to refresh/update, here's how my chart of overbought VIXes since 2009 looks:

Sept. 28 was actually the best buy signal in this series, up a whopping 9.93% in a month! Furthermore, the SPDR S&P 500 ETF Trust (SPY) bottomed on Day 1.

Fading overbought VIX continues to do well. Buying and holding for one month has a median return of 3.33% vs. a randomly timed median return of 1.52%. It's mostly worked, as you can see, but we're just off a pretty bad one in August -- which I hope highlights that this idea, like most trading ideas, will sometimes fail badly. I'm going to take a wild guess that when we look back on longs initiated Friday, they will return something in between the last two instances.

I cut a lot of studies off in 2009, mainly because 2008 numbers look an awful lot like outliers, and thus tend to distort findings. But there's always a danger in picking endpoints. It doesn't change an awful lot in this case, though. If I go all the way back to the beginning of SPY time in 1993, the one-month hold strategy shows a median return of 2.16% vs. a median one-month return of 1.12% on randomly timed one-month holds.

I did notice something else that was interesting. VIX vs. SMA as a signal works best when VIX is relatively modestly overbought. The correlation of VIX vs. 10-day and future one-month SPY returns is near zero since 1993. If we only look at days where VIX closed 20% above the 10-day, it's still near zero. But if I look at days where VIX closed >15% above the 10-day, but <27% above, the correlation jumps to 16.6. That's not terribly high, but it does suggest that there's a sweet spot of overbought in there that's worth looking further into.

The flaw, of course, is that overbought in that range can expand to severe overbought. That suggests the best idea is to fade (go long) with a lower threshold than 20% and then use stops. We'll take a look in the not-too-distant future.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

Okay, how about another way of parsing overbought CBOE Volatility Index (VIX)? I've generally advocated looking at the VIX "stretch" as a continuum. I use 20% above the 10-day simple moving average (SMA), but that's simply a round number that triggers a nice quantity of signals (about four per year). But VIX closing 19% above its 10-day "ain't nothing," even though it's a non-event in this system. Likewise, VIX 40% above the 10-day isn't the same thing as 20% above, even though it's treated the same.

So, here's the deal. We're going to break down VIX vs. its 10-day into ranges, and then look at one-month SPDR S&P 500 ETF (SPY) returns.

These are non-culled numbers; rather, it's just as if you walked on any day and look at where VIX closed vs. its 10-day. That leaves some redundancy in all readings. To put them in context, the randomly timed median one-month SPY return since March 1993 is 1.52%, and the average return is 1.13%. It suggests that at the high end, going long SPY when VIX is >20% above its 10-day SMA looks wise. But then it gets odd. It troughs between 15-20% above, then spikes again from 10-15% above.

If you prefer your data in graph form, it looks like this.

It's important to note that VIX spends relatively few days significantly deviated from the 10-day. Here's the quantity of days in the sample at each range.

The market does do well after VIX closes 20% below the 10-day -- but keep in mind it's only happened 21 times, or less than once per year. Extreme complacency is a signal in that it's likely a byproduct of some grand market worry evaporating. I could see it happening in December, in fact. We spend a month worrying about -- gasp! -- a rate hike. The rate hike happens, and VIX tanks on a combo of news out and seasonality. This small sample size suggests that's a bullish market setup.

The 10-15% above the 10-day zone is the most intriguing finding here. VIX closes there about 6% of the time, and it's a relatively good time to get long. Maybe that's the area where we should focus more attention.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research

As the market opened up small Monday, and the CBOE Volatility Index (VIX) dipped ever so slightly, one of my Twitter people made an interesting observation.

$VIX futures are usually smarter than spot.

— selling_theta (@selling_theta) November 16, 2015

At the time, futures were giving up the ghost way faster than VIX itself. And it proved pretty prescient, as the market went north and VIX itself finally started to give back some recent gains.

Of course, it's VIX expiration week … regular VIX, I mean. The November monthlies expire on today's opening rotation. I don't believe VIX futures are always "smart," but those bunnies do have good noses as to how that opening run-off will play out.

As to futures in the bigger picture ... well, not so much. They always expect a lasting VIX rally. We get our VIX blips. We're ebbing off one of said blips as I type. But further out on the curve, the futures almost never get it close to right. But hey, if you disagree, there's a decent VIX rally on tap over the last eight months!

I do agree that VIX will go north of 20 again sometime between now and June. I also believe we're transitioning to more of an "up" longer-term VIX regime. But that doesn't mean I'd buy VIX futures up to 20. I have better odds in daily fantasy sports than I do guessing the timing of VIX strength that far out.

It's interesting to note that there's still some residual apprehension in VIX futures. Here's the term structure on Aug. 20, just before the serious market dip, vs. term structure now and on Oct. 12, another date with a similar spot VIX.

We're considerably more elevated than back in August, and somewhat more elevated in the nearer cycles than we were in October. I'm not going to say fear is enormous, but it's clearly out there.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research