Back in February and March, the wild swings in the VIX inspired me to write extensively about my research into VIX spikes and topics related to volatility extremes. Most of these are spikes higher, as fear is not something that is usually extinguished during the course of a single trading session, just as one slain dragon is not likely to put a village back at ease. After all, what is that the chance that there was only one dragon out there?
There was an instance, however, in which the VIX nearly dropped 20% in one day in March, prompting a retrospective look, at the three previous instances of single day 20% drops in the VIX that I titled “Elast-o-VIX.”
Now that I know enough blog-related HTML to be dangerous, I have updated that earlier graph and added second graph that depicts yesterday’s 23% drop in the VIX in the context of the past week. If the past is prologue, then does it matter if the current VIX drop was not preceded by a VIX runup of similar proportions? That remains to be seen, of course. Past instances notwithstanding, the VWSI currently stands at +4, suggesting that the VIX is more likely to move up from here rather than down in the next week or two.
[With only three previous data points to draw upon, I feel compelled to note that we are a long distance from anything resembling statistical significance, but sometimes historical voyeurism is more interesting than statistical significance, particularly when we are talking about once or twice a decade events.]