Wednesday, December 24, 2008

The Volatility of the VIX: From Bear Panic to Barely Elevated

VIX, a measure of implied volatility for S&P 500 options, has been making multi-month lows this past week, declining even as stocks have moved lower. Equally interesting, the volatility of the VIX itself--measured in the chart above as a five-day moving average of high-low percentage range--has returned to average values characteristic since 2007.

The volatility of the VIX is interesting in that it measures relative uncertainty in options pricing. During the October plunge, we saw record uncertainty, which has been declining ever since. Note how, in general, we tend to see relative uncertainty in VIX volatility near intermediate-term market lows and relative certainty near peaks. More than 40% below the 2007 peak in the S&P 500 Index, we're now seeing surprising unanimity and comfort in option pricing, even as the market has declined. In the past, that has not been a bullish indication.


SY said...

Brett, do you draw any conclusion from the fact that the Now low in the SPX came with a more muted level of the "volatility of the vix?" Thanks

Matt said...

I really like this concept used as an indicator.

Where did you pull the data from? Does stockcharts or someone else track this?

Max Dama said...


So you think an elevated VIX indicates a regime change in progress? Seems intuitive.


Bill said...

Dr. Brett,

It appears the VIX has character changes depending on the phase of the market we are experiencing. For example a particular range is useful in a bull mkt, a different range in the initial part of a bear mkt and then yet a different range during the capitulation phase. I would guess this hinders across the board statistical analysis?

For anyone researching this area it might be useful to visit the CBOE website page on the VIX as there was a major change in how it is calculated in 2003. The direct link is


Brett Steenbarger, Ph.D. said...

Hi SY,

I don't really have enough data on VIX volatility to interpret divergences with confidence--


Brett Steenbarger, Ph.D. said...

Hi Matt,

I pulled the raw data from e-Signal and computed and charted everything in Excel. I don't know of any Web sources for these data--