We know at least for the moment that oil and stock prices are intertwined. That won't last forever, of course. Mark Hulbert shows a much different relationship if you look back past the last decade. And hey, I'm old enough to remember when lower oil prices were considered a good thing.

What about options though? Specifically, options volatility. How close is the relationship there? Well, here's a look at the CBOE Crude Oil ETF Volatility Index (OVX), the implied vol of crude, vs. the CBOE Volatility Index (VIX). OVX data only goes back to May 2007, so we're talking about 8.5 years' worth of numbers.

They move pretty closely to each other. OVX tends to sit higher than VIX, though until 2015, VIX would catch up in the spikes. Since 2015, not so much. OVX has pretty clearly led the way, and VIX has lagged. We'd probably have VIX in the mid-30s on average now if it truly tracked the OVX spike.

Despite what the above suggests, correlation between the two hasn't moved much. Here's a 20-day rolling correlation look between one-day moves in VIX and OVX:

This ebbs and flows and never really moves over time. We're right near the all-time correlation of 0.45. So, perhaps oil and S&P 500 Index (SPX) options aren't quite as locked to each other as it seems.

I suppose there are two ways of looking at the connectivity. One is, as we noted, volatility sloshes around between asset classes. You do have oil vol at highs not seen since 2009 and there's no way that doesn't have some effect on VIX.

The other is that even though the historical correlation is about normal, it's pretty clear VIX isn't fully reacting to OVX. The bull case there is that VIX is smart and expecting OVX mean reversion. The bear case there is that we're about to get faked out by better and less volatile action in oil, and the mean reversion will involve VIX catching up to some of the OVX strength.

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

Having trouble keeping track of all those CBOE Volatility Index (VIX) exchange-traded funds (ETF)? Want to see how they act vs. each other, vs. stock indices, et al? Well, you're in luck. Eli Mintz of VIXCentral fame has introduced this:

"This is a new tool I developed which basically allows you to conveniently view many Yahoo charts together. You can change the period, size etc. and of course add your own tickers and create your own views."

Here's a screenshot of what Eli's talking about:

I went with the one-month view here, but it's flexible to different time frames. As he notes, you can also add different tickers, change the chart, add studies, et al. If you click on the chart, you load the Yahoo Finance page for the ticker.

For posting purposes, I tend to just load the data myself into spreadsheets so I have the flexibility to run things like correlations, line estimates, scatter plots, et al. For informational purposes, this is terrific. Looking at all these charts highlighted something for me. It's truly (relative) boom times for iPath S&P 500 VIX Short-Term Futures ETN (VXX) and all its offshoots. Five months of non-disastrous volatility will tend to do that I suppose. Here's the VIX/VXX/ProShares Trust Ultra VIX Short Term Futures ETF (UVXY) look:

UVXY is double VXX, so thus gets hit both by the contango effect that hits VXX itself and the compounding effect that hits all trackers. Yet it's had a half-year of fantastic action. Well, part of it is that VIX futures aren't in contango now. VXX theoretically lifts over time in that setup. In backwardation, a VIX future gains some value each nanosecond that goes by.

And part of that is that while churn will eat up a tracker, compounding helps in a directional move. I still would never hold something like UVXY for anything but really short term. But it's interesting to see that it actually can have a sustained stretch of non-disaster.

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

Volatility has been on the rise this month, amid growing uncertainty surrounding the "Brexit" referendum in the U.K. This heightened anxiety is evident in the price action of the CBOE Volatility Index (VIX) -- the stock market's "fear gauge" -- which measures short-term volatility expectations for the S&P 500 Index (SPX) via its options prices.

At its June peak, the VIX hit 22.89 -- its highest perch since Feb. 19 -- bringing its month-to-date gain at that point to 61.3%. More recently, the VIX was seen at 18.74 -- down 11.5% today, with voting currently underway in Britain over whether the country will leave or remain in the European Union (EU).

While such spikes in volatility are typically accompanied by a big downside move in stocks, the SPX is up nearly 0.4% month-to-date, a historical feat in and of itself. What's more, "VIX premiums" -- which weigh the S&P's 20-day historical volatility (HV) against the spot VIX -- spiked to 213% yesterday.

This is just the second time ever that VIX premium has jumped north of 200%, according to Schaeffer's Quantitative Analyst Chris Prybal, with the metric hitting 289% on Dec. 31, 2010. While the sample size for this indicator is extremely small, the SPX went on to perform well after the previous signal. Specifically, the S&P was up 1.1% one week after the record VIX premium surge, and 2.8% over a two-week time frame. Going out about six months returned 6.5% for the SPX.

Meanwhile, according to Prybal, these large VIX premiums are more a result of a decrease in the S&P's HV, than an absolute increase in VIX. For instance, on Dec. 31, 2010, the SPX 20-day HV registered at 4.57. Yesterday, this metric hit 8.19, and was last seen at 6.77.

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Global stocks are cratering today, after being blindsided by Thursday's "Brexit" vote in the U.K. This uncertainty is reflected in the market's "fear gauge," with the CBOE Volatility Index (VIX) lingering near levels not seen since mid-February. Additionally, the iPath S&P 500 Short-Term Futures ETN (VXX) -- which measures the front two-months VIX futures contracts -- has jumped 21.6% to 16.55, on track for its biggest one-day percentage rise since VXX began trading in January 2009.

In fact, according to Schaeffer's Senior Quantitative Analyst Rocky White, this is the third time this year the VXX has jumped 10% or more. The most recent occurrence was on June 13, ahead of the highly anticipated June Federal Reserve meeting. One week after this pop -- following the Fed's monetary policy decision -- the VXX had retreated 12.5%.

However, this subsequent short-term price action seems to be status quo for VXX following moves of 10% or more. In the 35 other times the exchange-traded note (ETN) has moved 10% or more in one session, it averaged a loss of 2.9% going out one week. Discounting the June 13 jump, this average loss widens to 5.1% when looking at the subsequent one-month period.

What's interesting is that while these average returns in the wake of a 10% or more move are more or less in line with VXX anytime returns, the standard deviation of the former is much greater than the latter across all time frames. In other words, this heightened volatility could continue in the near term.

Meanwhile, such big moves in the iPath S&P 500 Short-Term Futures ETN (VXX) could have bullish implications for the S&P 500 Index (SPX) in the near term. While the S&P is down 3% at last check, the benchmark has averaged strong gains across all near-term time frames following a VXX jump of 10% or more, compared to its anytime returns. Plus, the S&P has been positive more times in the wake of this signal, versus its anytime performance -- looking back to 2009.

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Stocks are on pace to suffer their worst two-day slide since August 2015, as "Brexit" anxiety pushes the broad-market indexes south of their 200-day moving averages. However, while the S&P 500 Index (SPX) is on pace to end the day 1.9% lower, at last check, the CBOE Volatility Index (VIX) -- often dubbed the market's "fear gauge" -- is also set to end the day in the red. According to data from Schaeffer's Quantitative Analyst Chris Prybal, this sets us up for a signal not seen since April 2009.

The VIX has closed lower the same day as an S&P drop of 1.5% or more just seven times since 1990, using 20 trading days between signals. In fact, three of these seven signals occurred at the tail end of the financial crisis, between December 2008 and April 2009. Prior to that stretch, it had been roughly six years between signals, with three between September 2001 and August 2002.

The S&P has been positive more than 71% of the time, on average, going out five, 10, and 20 days after a signal -- notably better than its anytime percent-positive during the same time frames since 1990. While the post-signal percent-positive averages start to underperform at the 40-day marker, the standard deviation and average S&P returns after a signal are significantly higher than usual across the board. In other words, this signal has tended to precede both more volatility than usual, as well as bigger-than-average gains.

For instance, the SPX averages a 10-day gain of 4.3% over the 10 subsequent sessions after a signal -- 14 times the anytime 10-day return of just 0.3%, on average. Likewise, the broad-market barometer averages a return of 9.1% 126 days after a signal -- more than double its typical 126-day return of 4.1%. Following the past two signals, in February and April 2009, the SPX was up 36.6% and 29.3%, respectively, going out 126 days.

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Last week's huge gains in the stock market corresponded with an absolute implosion in the CBOE Volatility Index (VIX). In fact, the VIX -- otherwise known as the market's "fear gauge" -- suffered its biggest weekly drop ever, surrendering 42.7%. Below, we'll take a closer look at how the VIX has performed after other sharp slides, and also examine what happens to stocks, using the S&P 500 Index (SPX) as a benchmark.

Schaeffer's Senior Quantitative Analyst Rocky White cooked up the chart below, which shows all weekly VIX drops of at least 20%, dating back to 2010. As you can see, last week's 42.7% plunge was by far the sharpest, with only January 2013's 39.1% drop in the same ballpark. Extending the search back to 1990, only one other time has the VIX surrendered more than 30% in a week (August 2007's 31% drop).

Below, White summarized the chart above, to give us an idea of where the VIX could go from here. As you can see, the VIX tends to outperform versus its anytime returns over the short term, while volatility tends to die down, per the standard deviation row. However, by three months, the post-drop VIX has historically underperformed, while volatility has spiked considerably.

What about stocks? Well, the charts below indicate the SPX has tended to underperform following the last 17 VIX drops of 20% or more. The average post-signal returns out to one month are negative, versus positive anytime readings. By three months, the SPX is back in positive territory, but its average return and percent positive significantly underperform the corresponding anytime readings (0.6% vs. 2.7%, and 58.8% vs. 72.7%). Long story short, sharp VIX drops over the past few years have historically been somewhat bearish signals for stocks.

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Dow tech stocks International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT) recently made waves during their respective turns in the earnings booth. IBM's quarterly report was met with a flurry of price-target hikes, while MSFT gapped higher on its own round of bullish brokerage notes. Curiously, though, the options market still doesn't think these stocks have much potential to make outsized moves.

Let's start with IBM. Expectations are very high right now at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), with traders buying to open 1.77 calls for every put during the last two weeks -- in the 94th annual percentile. As alluded to, this optimism is well-deserved, considering the stock's fundamental and technical strength. Since bottoming at a five-year low in February, IBM stock has jumped nearly 39% to trade at $162.26. Also, the shares notched an annual high of $162.88 earlier today.

Yet, the options market is pricing in historically low near-term volatility expectations. Take for example IBM's Schaeffer's Volatility Index (SVI), which -- at 15% -- rests below 95% of all other readings from the prior year. On top of that, International Business Machines Corp.'s Schaeffer's Volatility Scorecard (SVS) registers at 86. In other words, over the past year, the market has tended to underestimate the stock's ability to make massive moves -- making now an attractive time to buy premium on short-term options.

The story on MSFT is pretty similar. Currently, the shares are knocking on the door of their 16-year high of $56.85 from late December. Plus, the tech stock has been on fire month-to-date, racing over 10% higher to trade at $56.50 -- including a 5.3% post-earnings bull gap last week.

The similarities to IBM don't stop there. MSFT's SVI of 16% registers at an annual low, suggesting short-term options are relatively inexpensive at the moment, from a volatility perspective. Plus, the stock's SVS of 77 indicates the shares have made bigger moves than the options market has priced in over the prior 12 months, suggesting now is an opportune time to purchase premium on short-term strikes.

Interestingly, options traders have been placing downside bets at an accelerated clip in recent months. Microsoft Corporation's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.62 isn't far from the top quartile of its annual range. While some of this put buying may have been at the hands of shareholders hedging, an unwinding among "vanilla" bears could add fuel to MSFT's fire.

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The CBOE Volatility Index (VIX) just hit an annual low of 11.12, and has dropped more than 55% since its post-"Brexit"-vote peak of 26.72 on June 27 (a day the VIX ultimately closed lower with stocks, triggering a signal not seen since April 2009). In fact, the market's "fear gauge" hasn't closed higher for more than two straight days since its five-day winning streak in mid-June, and just wrapped up its worst six-week stretch since the height of the financial crisis, in August 2008. But what could the VIX's weekly losing streak mean for the S&P 500 Index (SPX)? 

Going back to 1990, this is just the fifth time ever the VIX has suffered a six-week losing streak, the last time being nearly eight years ago, mid-recession. The current streak has been the worst ever for the VIX, resulting in a 55.8% decline, according to Schaeffer's Senior Quantitative Analyst Rocky White. The S&P, meanwhile, has surged to record highs, rallying 7.1% -- in the middle of the pack, as far as historic returns during VIX plunges.

Following the last VIX six-week losing streak, it was a pretty brutal time for the SPX -- though again, that was in the heart of the financial crisis. The S&P was down 3.9% two weeks later, while the VIX had bounced back 22.6%. Going out even further, the S&P was 38.1% lower three months after a VIX signal, while the VIX itself had nearly quadrupled.

Averaging S&P returns after the past four VIX signals, it doesn't look pretty at any of the near-term checkpoints. However, the numbers are heavily skewed by the ugly stretches in 2001 and 2008. After the VIX signals in 1992 and 2003, the S&P actually muscled higher in the near term. At the same time, the VIX has averaged a positive return at each checkpoint, up nearly 77% three months post-signal, though that's also heavily skewed by 2008.

In conclusion, the sample size is really too small to draw any solid conclusions about where the S&P might be headed after this last VIX losing streak. However, if large speculators in the VIX futures market are wrong again, we could be at risk of a volatility pop.

 

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With earnings season about to wind down -- just a handful of big names are left to report -- strategists at Goldman Sachs noted low volatility expectations on several popular stocks that have created attractive option-buying opportunities. Of particular interest are tech stocks Amazon.com, Inc. (NASDAQ:AMZN) and Intel Corporation (NASDAQ:INTC), which both reported quarterly earnings in late July. While the brokerage firm recommended a long straddle on INTC in particular, any vanilla options buyers could get an unusually good bargain on either of these stocks at the moment.

AMZN hit a fresh record high of $773.75 earlier today, and was last spotted at $770.85, bringing its year-to-date gains to 14%. The stock has been steadily climbing the charts since early February, with its 10-week moving average underfoot to lend support.

Unsurprisingly, this upward price action has translated into heavy bullish attention on the Street, where 27 analysts rate the stock a "buy" or better, compared to just two "holds" and not a single "sell." Plus, the brokerage bunch seems to be expecting the highs to keep on coming, as the average 12-month price target sits way overhead at $868.76. Meanwhile, short interest on the stock fell by more than 15% during the most recent reporting period to account for just 1.2% of AMZN's total float.

Options traders have been unusually call-skewed toward the stock, particularly among options expiring in three months or less, per AMZN's Schaeffer's put/call open interest ratio (SOIR) of 0.89 -- lower than 94% of the past year's readings. While this includes both buy- and sell-to-open activity, it's currently a much better time to buy AMZN's short-term options, as the market is pricing in historical low volatility expectations. The stock's Schaeffer's Volatility Index (SVI) of 15% represents an annual low, while its 30-day at-the-money (ATM) implied volatility (IV) hit a 12-month low earlier today. Meanwhile, Amazon.com, Inc. (NASDAQ:AMZN) holds a Schaeffer's Volatility Scorecard (SVS) of 71, indicating options have tended to underprice the stock's ability to make outsized moves over the past year.

It's been an underwhelming 2016 for INTC, by contrast, with the shares currently at $34.59, just above their year-to-date breakeven mark of $34.45. Yet, this level has emerged as a strong layer of support since the stock hit an annual high last month, suggesting a near-term bounce could be in the cards. And going farther out, the stock has tacked on a healthy 17% year-over-year.

On the sentiment front, the stock has seen modestly upbeat sentiment from the brokerage crowd, with 20 of the 32 analysts tracking INTC maintaining a "buy" or better recommendation. Plus, the 12-month consensus price target of $37.61 sits 8.7% overhead. However, there's still some room for future upgrades and price-target hikes to create tailwinds for the shares.

Elsewhere, traders have been turning more bullish toward INTC in recent weeks. For one, short interest on the stock fell by 10% during the two most recent reporting periods. Options traders appear to be raising their expectations, as well. The equity's 10-day call/put volume ratio of 3.05 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits just 2 percentage points from a 52-week high.

And like AMZN, Intel Corporation (NASDAQ:INTC) is presenting an appealing opportunity for near-term option buyers. The stock's SVI of 16% and its 30-day ATM IV of 17.5% each sit in the low 6th percentile of their respective 12-month ranges, while its SVS comes in at a healthy 80. Plus, the company is preparing for its annual developer forum in San Francisco next week, which could bring catalysts for a big move on the charts.

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The S&P 500 Index (SPX) has now gone 27 trading days without making a 1% move in either direction -- and is on pace for No. 28. The last time the broad-market index made a relatively sharper move was July 8, when it gained 1.5% -- thought it came somewhat close on Aug. 5, with a 0.9% win. Below, we'll explore the historical frequency of these low-volatility streaks, as well as their implications for future stock returns.

According to the chart below, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White, we're currently in the 13th streak of 27 straight sessions (or more) with narrow moves (<1%), dating back to 1990. As you can see, these streaks can get very long, stretching to 95 sessions in August 1995 -- and, going back to 1963, there was a 184-day narrow-move streak.

Per the chart above, the last time we saw a streak of this kind was nearly two years ago, in September 2014. This streak extended even further than 27 sessions, eventually ending after 32 trading days. What happened afterward? White's chart below shows pretty negative results, especially at the one-month mark, when the SPX was down nearly 7% -- easily wiping out the 3.6% gain posted during the streak.

However, the post-streak sell-off from 2014 represents an aberration, historically speaking. According to the next chart, when looking back to 1990, the SPX is higher two-thirds of the time one month after narrow-move streaks end, slightly better than the anytime percent positive (62.2%). In fact, the post-streak percent positive and average return numbers are higher across the board, while standard deviation is lower across the board. In other words, if past is prologue, we could be heading into a low-volatility environment in which the SPX continues to trek higher.

What happens when you extend the data past 1990? The chart below goes back to 1944, the first time the S&P 500 Index (SPX) strung together a streak of 27 sessions without a 1% move. As with the charts above, volatility remains lower than usual. However, the post-streak returns are actually worse than the anytime returns. Therefore, bulls should hope the more recent history dictates where the SPX goes from here.

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Wall Street has been almost eerily quiet lately, despite Fed and political uncertainty. The S&P 500 Index (SPX) is in the midst of its longest streak without a big move since 2014, having failed to make a 1% move in either direction since July 8. Meanwhile, the CBOE Volatility Index (VIX) -- also known as the market's "fear gauge" -- hit an annual low earlier this month, and triggered a signal not seen since the financial crisis, while U.S. listed options volume hit a 14-month low in July, after touching a 10-month high in June (courtesy of the "Brexit" vote), according to Tabb Group (subscription required). So, is this the calm before the storm? Or is there more smooth sailing ahead?

On one hand, Schaeffer's Senior Quantitative Analyst Rocky White recently noted that single-digit historical volatility readings of at least 15 straight days for the S&P tend to precede bouts of short-term stagnation. Stagnation begets stagnation, so to speak, with the data pointing to a couple more months of low volatility. Those looking to profit from an extended bout of quiet trading could consider short straddles.

On the other hand, with the August 2015 crash one year in the rearview, the VIX close yesterday marked a year-over-year (YoY) drop of 69.6%. That's the fourth-lowest YoY reading ever, with the three prior signals occurring in October and November 2009, when the volatility gauge was a year out from the 2008 gloom, according to Schaeffer's Quantitative Analyst Chris Prybal. But according to data from S&P Dow Jones Indices, the 35th week of the year -- this week -- has generated the biggest rise in volatility, on average.

As alluded to earlier, options volume has been quiet lately, and the aforementioned data from Tabb Group indicates August is on pace for even less activity than July. On the Chicago Board Options Exchange (CBOE) -- which accounted for about 17% of equity market share yesterday, per the Options Clearing Corporation (OCC) -- equity put volume totaled 416,434 contracts yesterday, marking the lowest since July 13, and second-lowest since June 23, just before the aforementioned "Brexit" backlash. The 21-day average put/call volume ratio fell to 0.61, marking the lowest reading since June 2015.

On the International Securities Exchange (ISE), the ISE Sentiment Index -- which divides opening long calls by opening long puts -- registered at a 52-week low of 31 yesterday. In other words, purchased puts were more than three times as popular as calls on the ISE, which made up about 12.4% of total equity volume.

Echoing this, as of yesterday's close, buy-to-open options volume on the SPDR S&P 500 ETF (SPY), PowerShares QQQ Trust (QQQ), and iShares Russell 2000 Index Fund (IWM) over the past 20 days -- a cumulative tally, not an average of the individual ratios -- was flirting with year-to-date lows. Call volume on the exchange-traded funds (ETFs) fell a steep 33% over the last 20 days, while put volume sank 23%.

Further, the 30-day at-the-money (ATM) implied volatility (IV) readings for the QQQ and IWM hit annual lows last week, and the SPY's current 30-day ATM IV sits at 10.9% -- in the 11th percentile of its annual range -- again hinting at attractively priced short-term options. But does all this suggest it's time to buy straddles -- a "directionless" options bet on volatility -- on the SPY, for instance?

According to recent data from White, no -- not yet, anyway. The proverbial "sweet spot" for SPY straddles, going back to 2010, has been when IVs are slightly higher, actually. Instead, traders looking to hedge against a volatility pop should consider buying VIX calls, Schaeffer's Senior VP of Research Todd Salamone recently wrote.  

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This week, we present to you one of those interesting data discoveries that occasionally crops up in the course of our routine study of various technical and sentiment indicators. In the process of composing his weekly report to our research team, Schaeffer's Quantitative Analyst Chris Prybal noted an apparent correlation between CBOE Volatility Index (VIX) futures put option volume and the action in the S&P 500 Index (SPX). Namely, per the chart immediately below, it would seem that when VIX's 20-day cumulative put volume falls below 400,000 contracts, the S&P tends to experience some weakness.

While VIX 20-day put volume regularly clocked in below the 400,000 threshold prior to 2013, there have been only 10 occasions since then when this low bar has been breached (limiting the study to only one signal per month to eliminate some redundancies). Upon further inspection, these troughs in VIX put volume have, in fact, served as precursors to VIX spikes, as well as some corresponding S&P weakness.

Looking out 21 days after a low-volume signal from VIX put options, the S&P is sitting on an average loss of 0.7% -- well below its average "anytime" 21-day return of 1%. Meanwhile, the VIX is up nearly 26%, on average, 21 days post-signal -- easily outstripping its average return of 2.8% for this time frame. While average returns go on to stabilize (and eventually turn positive again) for the S&P after this initial 21-day window, VIX returns don't peak until 63 sessions following the signal, when the average return arrives at 27% (compared to VIX's average 63-day return of only 4.2%). So if this pattern repeats itself in the weeks ahead, we can expect to see a short-term downturn in the S&P, accompanied by what may be a comparatively prolonged increase in the VIX.

Meanwhile, September tends to be a rough month for stocks already. Over the past five years, the S&P has averaged a 1.2% loss in September -- the worst of all monthly returns, on this basis.

So from a pure data analysis standpoint, there seems to be legitimate cause to suspect there may be some short-term weakness in stocks on the horizon -- along with an even more pronounced surge in the VIX. And while we wouldn't recommend unloading all of your shares and heading for the bunkers on the basis of what amounts to a relative handful of data points, those who prefer to play it safe might wish to avail themselves of some portfolio protection in the form of put options -- before the price to obtain that protection jolts higher.