Ten Years Since the Biggest VIX Spike Ever

Ten years ago today, we witnessed that largest one-day VIX spikein the nearly three decade history of the VIX.  On that day, the VIX rallied from a prior close of 11.15 to 18.31 – a 64.2% gain.  The move came in conjunction with a 3.5% decline in the SPX (large, but nothing like what would follow during the next two years) and followed overnight concerns related to the Chinese government raising interest rates to discourage speculation.  The fears in China were largely responsible for a 8.8% loss in the Shanghai Composite Index and a 9.9% loss in the FTSE/Xinhua China 25 index that is the basis for the popular Chinese ETF, FXI.

In retrospect, the biggest VIX spike of all was a short-lived phenomenon whose fundamental and technical underpinnings turned out to pose no lasting threats.  As is often
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The VIX Summit: CBOE RMC (March 8-10 in Dana Point, CA)

I often get asked about where to go to learn more about the VIX and volatility.  Well, if there is one event each year that falls in the absolutely-do-not-miss category, it is the CBOE’s annual Risk Management Conference, which is back in Dana Point, California this year from March 8-10.  It should be noted that while this is the 33rdannual incarnation of this event in the U.S., in the past few years, RMC-Europe (September 11-13, 2017 in Hertfordshire, U.K.) and RMC-Asia (December 5-6, 2017 in Hong Kong) now give VIX aficionados three different opportunities to gather around the globe and immerse themselves in all things volatility.

This year, Ed Thorp is the keynote speaker and as I have yet to hear him speak in person, I am very much looking forward to his talk on “Position Sizing and Relation to Risk Continue reading "The VIX Summit: CBOE RMC (March 8-10 in Dana Point, CA)"

Clustering of Volatility Spikes

Last week, my Putting Low Stock Volatility to Good Use (Guest Columnist at Barron’s) triggered a bunch of emails related to the clustering of low volatility.  Most readers expressed an interest in the phenomenon of volatility clusters occurring in both high and low volatility environments and were curious about the differences between high and low volatility clusters.

When it comes to measuring volatility clusters I am of the opinion that realized or historical volatility is a more important measurement than implied volatility measurements, such as is provided by the VIX.  When I think in terms of VIX spikes, I generally focus on two single-day realized volatility thresholds:  a 2% decline in the S&P 500 Index and a 4% decline.

The graphic below is in many respects the inverse of the graphic in Putting Low Stock Volatility to Good Use (Guest Columnist at Barron’s) – and this should
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SPX 1, 2 and 3-Year Returns Following Top and Bottom Five (and Ten) VIX Average Annual Readings

On Saturday, I posted Putting Low Stock Volatility to Good Use (Guest Columnist at Barron’s) and used that opportunity to expand upon some of the points I raised in my February 18th column for Barron’s.  Specifically, I addressed the issue of the clustering of low volatility and used a graphic to show that when the VIX closes below 12, it tends to persist in these low readings, clustering for several years, before remaining above 12 for even longer periods during high volatility regimes.  

Another claim I made in the Barron’s article (Putting Low Stock Volatility to Good Use) that I thought might benefit from a little graphical support was my contention:

“VIX data suggests the low volatility provides a foundation for extended bullish moves in stock. Look at the five highest and lowest average annual VIX readings and calculate the performance of the Standard
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Putting Low Stock Volatility to Good Use (Guest Columnist at Barron’s)

With spring training just getting underway in Florida and Arizona, I think it is appropriate that I once again have an opportunity to pinch hit for Steve Searsin his The Striking Price column for Barron’s.  Today’s column is called Putting Low Stock Volatility to Good Use (my title suggestions always seem to end up on the cutting floor) and builds upon some of the ideas I presented three years ago in Low Volatility:  How to Profit from a Quiet VIX.

If my memory is correct, this is the twentieth time I have been a guest columnist at Barron’s in this fashion and in keeping with tradition, I always try to make the column topical, particularly when there are some aspects of volatility that have investors more perplexed than usual.  Lately, it has been the persistent low VIX readings (including the first sub-10 VIX print in a decade)
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The 2016 VIX Futures Term Structure: Extraordinarily Average

Two days ago, in The Year in VIX and Volatility (2016), I made no mention whatsoever of the VIX futuresterm structure.  Traders of the full range of VIX products (futures, options and ETPs) hopefully know by now that the entire VIX product landscape is based -- and priced -- off of VIX futures and one of the most important aspects of VIX futures is the shape of the term structure.

Long story short:  as the graphic below shows, the 2016 VIX futures term structure (double red line) was closer to its historical average (wide gray line) than any prior year since the launch of VIX futures in 2004, with the average term structure over the course of the year demonstrating a relatively modest upward sloping term structure, also known as contango.


[source(s) CBOE, VIX and More]

By way of explanation, the graphic above shows the average (mean)
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