A Historical Perspective on Current VIX Levels

With all the talk about VIX not acting right (I don’t use the word broken) you would think that someone had written a book criticizing the fear index.  My feeling has been that VIX is doing what it is supposed to do and that is measure the implied volatility of index options that are listed on the S&P 500.  In the past sustained higher volatility has been associated with a bearish equity market.  Since the stock market has not experienced any sort of sustained downtrend or even a substantial one day drop in several months VIX has remained low.  Also, VIX has remained low and the very resilient stock market continues to overcome all obstacles and make a push to higher highs.  I almost expect traders on exchange floors to start chanting Rudy over and over again based on the market’s resilience in the face of so much adversity whenever the S&P 500 sets a new record.

On my extensive to do list was to create the chart that appears below.  This chart shows a 10 day moving average of four different data points.  The upper line (red) represents the high for VIX on each respective day over the past ten years (2004 – 2013), the middle line (green) is the average closing price for each day over the last ten years, and the bottom line (blue) is the low price for each date on the chart over this same ten year period.  Tucked in there between the green and blue lines is the closing price for VIX from January 2, 2014 through April 16, 2014 represented by the purple line.  Again all these lines are 10 day moving averages as some outlier days honestly made the chart very difficult to read until I smoothed things out a bit.

VIX 10 Year Comparison - Updated

What I get from this chart is that VIX has been low this year.  I didn’t really need to spend an hour compiling and formatting over ten years of VIX data to figure that one out.  However, VIX has not moved under the low price over the previous ten years for a single day this year.  If VIX was consistently below the bottom line on this chart then I may have to question the validity of VIX as an indicator of market volatility and ‘fear’.  However, VIX has admittedly been below average this year, but not puttering along consistently testing all-time lows.   Despite there being some setbacks and fundamental equity market concerns, the equity market has continued to remain near all-time highs.  Today the market closed today about 1 ½% short of a record.  When you think about it VIX has not moved up and not signaled much concern about the equity market and it has been right – that’s anything but ‘broken’.

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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