Are We in the Beginning of a VIX Regime Change?

Yemen is the latest 'cause' for an uptick in volatility

Mar 27, 2015 at 9:14 AM
facebook X logo linkedin

As savvy late '80s options trader David Coverdale once sang -- "Here We Go Again."

Yes, it's yet another market drop/CBOE Volatility Index (VIX) pop. It seems like only a week ago we had gotten comfortable with the fact that the Fed would manage to get the word "patience" out of its statement and not spook the markets. Wait … that was only a week ago.

We rallied for a couple days, but have gotten quite ugly since. VIX made up the entirety of its large drop last Wednesday. But we're still a bit away from getting "officially" overbought. Depending on the timing, it's going to take a close near 18.

Maybe it's a little shakier this go around since we don't have our usual cast of drivers for the turn this week. "Causes" for market moves are often specious (to say the least). TV needs to come up with a "reason" for every move, but in all fairness, we humans do like explanations, so it's tough to blame them. It's just usually in the form of "here's the news backdrop, and here's the market move, so ergo the news led to the market move."

So, for what it's worth, we're blaming Yemen and worries about a mediocre earnings season for the current bout of malaise. The irony is that if you buy the Yemen part, it's putting a bid under oil. It wasn't that long ago that we were blaming cascading oil prices for market dips.

The volatility market has acted pretty unemotionally to the recent selling. Here's the VIX futures:

VIX Futures Term Structure in 2014

That's pretty much how VIX futures always look -- it just flattens out slightly as VIX lifts. And VIX itself around 16 doesn't tell us much in a vacuum. It's still down in 2015 … about 18%, in fact. But as you may remember, VIX spiked into the close of 2014, which makes comps kind of misleading, given it just uses an arbitrary endpoint.

"Mean" VIX for 2015 is 16.67 so far, which is a considerable uptick from 14.17 in 2014. It's not a perfectly fair comp. Summer tends to weigh on volatility, as do holiday stretches. On the other hand, we haven't had our annual Fall VIX-plosion yet, either. We do figure to close the year with a higher mean than 2014, though, as we're likely transitioning from the low-volatility "regime" of the last five years or so into a high-volatility "regime." And that's just a long-winded way of saying one of these volatility pops will actually "stick."

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


Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI