Monday, March 2, 2009

My Take On The VIX

Another big day down today and still the VIX isn’t stretched. An observation I’ve seen several traders make is that while the S&P fell hard last week, the VIX (and VXO) didn’t rise. The interpretation by some is that this suggests a lack of fear and is short-term bearish. I was unable to find evidence to support this theory. Below is one test I ran that looked at other times the S&P fell at least 2.5% while the VXO also fell.



I wouldn’t call the results bullish but I wouldn’t call them bearish either. I would suggest that perhaps the VIX is simply an indicator lacking a solid edge for the time being.

3 comments:

toptick said...

Folks must be comparing levels (i.e., if the SPX is back to the November lows, the VIX must be back to those highs). But in fact, VIX is now at "normal" levels compared to trailing volatility. In November, VIX was abnormally _low_ compared to the volatility then. In fact, the VIX/HV ratio was low from August until January 14 by my measures.

Kevin said...

Rob, I think you posted this a tad early. Yahoo Finance showed VXO closed at a six-week high on Monday.

Rob Hanna said...

Kevin -

It only closed that high because I posted about how it was low :)