Remembering the Great VIX Panic of Fall 2014

Volatility hit peak levels last week, only to quickly reverse course

Oct 23, 2014 at 9:11 AM
facebook twitter linkedin

Remember The Great CBOE Volatility Index (VIX) Panic of Fall 2014? That was so last week. I mean, literally, last week. VIX hit a high of 31.06 on Oct. 15. Just four trading days later, it bottomed at 16.03, not too far from a 50% retracement in under a week. Not sure I've ever seen that happen. It dropped over 10% three days in a row, which I know I've never seen because it's unprecedented, according to Bloomberg.

You can't trade VIX. Yes, I know, there's something called VIX that you can trade futures on, but it's not actually VIX -- I can't emphasize that often enough. You can trade the iPath S&P 500 VIX Short-Term Futures ETN (VXX), and its double, evil cousins ProShares Trust Ultra VIX Short-Term Futures ETF (NYSEARCA:UVXY) and VelocityShares Daily 2x VIX Short-Term ETN (NYSEARCA:TVIX), though. And, TIVX did actually lose about half its "value" from the pre-open on Oct. 16 into the close of Oct. 22.

If you're ever tempted to hold TVIX for any length of time, please save this chart of a mere six trading days (click chart to enlarge):

Daily Chart of TVIX from Oct. 14 through Oct. 21

It rallied 50% in about two days, gave it all back in one day, then lost another 25% two days later. Yes, it's great to catch that elevator up. But, you better have timed it pretty darn well. And, traders/investors are trying their best to catch these waves. VXX saw record dollar volume last week.

Meanwhile, there's strong interest in betting against volatility. This, from Bloomberg:

About $757 million has been added to the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) in October, the most for any month since the note began trading in 2011, according to data compiled by Bloomberg.

Hard to make much of a market call based on all this, as there's action every which way. Well, there's one clear beneficiary -- the Chicago Board Options Exchange (CBOE)!

If there's one big takeaway in all this, it's that times change and technology changes, and so on, but market dynamics remain pretty constant. Stocks periodically shake out investors. And, every time that happens, we humans look for reasons why. But, all we really do is take whatever is going on in the world at the moment the markets get shaky and assume there's some sort of causation. But, it's really more coincidence than anything else. There are always 10 or 20 or 50 bad stories around, it's just that none of them matter as far as the market is concerned, until they absolutely matter. And then, before you know it, the same stories don't matter anymore.

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


If you are not making money with options, you aren’t buying options like this…

There is no options strategy that more perfectly approaches trading the fastest moving and most volatile stocks available in the marketplace than this one. In fact, there is no strategy that better utilizes put options for optimal returns and a real trading edge over other traders in the exact same market. New options traders fail out at an incredible rate without proper trade research, execution timing, and option picking. Capitalize on Schaeffer’s 100+ years of options trading excellence with the most coveted product launch in company history. Don't waste another second... join us right now before the next round of trades are released!

Schaeffer's Investment Research Stock Pick Report


Special Offers from Schaeffer's Trading Partners