Category Archives: The Volatility Index

Using VIX in Exposing Complacency

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Using VIX in Exposing Complacency

 

 

While much has been said about the efficacy of the VIX to expose rising fear in the market, the index also deserves at least the same amount of ink spilled for its ability to expose rising risk appetite, sometimes also known as rising complacency. The chart illustrates how the most prolonged periods of relatively low volatility coincided with a phase of rising equities, characterized by rising bullishness and heightened investor confidence in the stock market. These phases are prominently identifiable in August 1998, January 1999 through February 2000, and Continue reading →

The Volatility Index

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The volatility index (VIX) measures the volatility of a wide range of options on the S&P 500 Index and is used to gauge the markets’ expectations for volatility over the next 30 days. Quoted as a percentage, a VIX figure

greater than 30 is associated with high volatility resulting from investors’ fear of uncertainty, while values under 20 are associated with relatively low volatility or less anxiety about the market. Low values may also reflect complacency arising from overconfidence with a rising market, or exuberance. Accordingly, the VIX is known as the fear index. During the market crash of October 1987, the VIX shot up to a record high of 172 from the mid-20s in the prior week. Continue reading →