My knee jerk answer was that 20 trading days is the magic number for determining whether echo volatility has run its course or if the VIX is entering a period of sustained volatility. A simple test is whether the close on day 20 is below the close on the day of the VIX spike or even below the 10 day SMA.
As March 27th marked the 20th day since the 2/27 spike, the fact that the VIX had dropped 26% from the 2/27 close should certainly provide considerable comfort for those wondering whether the VIX is likely to spike back into the 20s soon.
A look at the chart I posted last Thursday confirms that following the 2/27 spike, the price action in the VIX has been the weakest yet by historical standards. In looking at that same graphic, however, the conclusions about the previous eight VIX spikes are not so obvious.
In this morning’s research project, I examined all nine VIX one day spikes of over 30% (which includes available data for the 2/27 spike) and looked at the close on the day of the spike, 5 days out, 10 days out, 15 days out and 20 days out. I then compared these to the VIX closes on days 30, 40, 50 and 60 in order to determine if any of the five day increments added meaningfully to the ability to predict VIX levels down the road. One conclusion surprised me a bit: the first ten days tell you very little about future VIX prices that you don’t already know by just applying ‘normal’ VIX mean reversion tools to the close on the day of the spike. By day 15, it is possible to predict future VIX price levels with considerably more accuracy and by day 20 I would say that I am “as comfortable as possible” about making predictions about future VIX levels and the possibility of more echo volatility. Of course, your comfort may vary...
Keep in mind that one of the golden rules of VIX mean reversion is that if mean reversion does not play out over the course of 10-20 days, then we are likely headed for a period of extended volatility. Given the events and numbers that have fallen out of the post-2/27 spike, history says that we are more likely to see the VIX back below 11 before we see it in the 20s again.