Where Does VIX Stand After Friday's Spike?

Sure, the CBOE Volatility Index (VIX) is higher after Friday, but what does that really mean?

by Adam Warner

Published on Apr 20, 2015 at 9:12 AM
Updated on Apr 20, 2015 at 5:32 PM

I'm watching Financial TeeVee on Friday and I hear this: "What should your market strategy be amidst all this volatility?" It was a teaser for whatever guest came up next after the commercial, but, well, let's put that teaser into context.

Yes, the market acted rather poorly on Friday. But "all that volatility" over the past four weeks or so took place in about half a day; otherwise, we're very calm. Ten-day realized volatility in the SPDR S&P 500 ETF Trust (SPY) as of Thursday was 5.7. Of course, it then popped 3 points on Friday, so it's not totally inaccurate to call this a vol pop.

The CBOE Volatility Index (VIX) lifted over 10% on the session. But here's where we start getting a bit misleading: that's a 10% rally off a four-and-a-half month low, and it still has a full in the 13s. And don't even get me started on the iPath S&P 500 VIX Short-Term Futures ETN (VXX) -- it's now on a streak of one straight day without hitting an all-time low. Long story short, don't start reallocating funds and tweaking your strategy based on a half-day vol surge that still leaves us at low-to-mediocre levels, no matter where you look.

I do understand the frustration with the market, though. It's pretty remarkable how poorly we act every time we get at/near the all-time highs in the indices. There's no evidence yet we can break through here. It's just not "volatility" that's an issue. VIX is down big this year, and while that misleads a bit (we closed 2014 with a vol pop), it's still tough to reconcile these levels with anything but "eh." VXX "investors" are pretty much all underwater, as is the norm, so it's tough to find a way that the volatility "asset class" is working for anything but a well-timed, short-term trade. And that's the same as always. I think my favorite part of Friday's dip was that we heard "Greece" again:

"Greece said it won't renege on election pledges to end austerity measures, even as creditors pressed for a compromise to free financing and avert a worsening crisis."

If it seems like this story never ends, well, that's because ... it truly never ends. The good news is we'll stop caring about this soon, like we always do.

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

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