A Brief Review of VIX in the First Half of 2014

The first half of 2014 is behind us and before we celebrate the birth of our nation by blowing up a small part of it I would like to take a look at the price action for VIX so far this year. The table below compares VIX in 2014 to the price action by year for VIX between 2004 and 2013. Keep in mind 2014 is for six months while the rest of the rows represent full years.

VIX 1H 2014

The first thing that sticks out for me on this table is the last column. I guess 2008 was so bad that it surprises me that is was the only year since 2004 that the S&P 500 lost value. By the way, a pretty big portion of that 6.05% for the S&P 500 this year came during the second quarter. The second quarter is also the period of time that the VIX was making post 2008 lows and getting attention for doing so.

Note that the average for VIX is 13.77 this year which is the lowest average since 2006. Reading the popular press you would think that VIX had never been lower, but back in 2005 and 2006 the average VIX closing price was 12.81. Actually in 2006 it was 12.80653 and in 2005 it was 12.80706, but I think 12.81 is good enough for our purposes.

Despite the hubbub about VIX being so low, the high in 2014 is actually higher than the high in 2013. Of course we have a lower low in 2014 than in 2013 which translates into a wider range which is good for a certain kind of volatility trader.

So briefly, VIX has hit the lowest levels since 2007 and the highest since 2012. On average it is low, but has been lower (see 2005 – 2006). The final thing I want to point out on this chart is in 2007 – note the low for VIX was 9.89, but also check out the high (31.09). VIX was low in 2007 and VIX is low now. However, implied volatility tends to revert to a mean over time and that mean is higher than where we are right now. The only question is on the time side of the equation.

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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…