Wednesday, September 22, 2010

VIX and Historical Volatility Settling Back into Normal Range

So much has been made lately (here and elsewhere, e.g., Surly Trader) about the extremely steep term structure in the VIX futures that I thought it is important to point out that in terms of current data, the VIX and historical volatility are sitting right in the middle of historical norms.

The chart below captures the mean VIX (red line) and mean S&P 500 10-day historical volatility (HV) values (blue line) for each year going back to 1990. In addition, I have added a beige column to show the ratio of the annual means for each year. After an unusual pattern in which the VIX spiked higher than HV in 2008 and remained persistently high relative to HV in 2009 (think “disaster imprinting,”) it now looks as if the relationship between the two is back to the more standard correlation and differential. Note also that the VIX is typically about 35% higher than historical volatility in the SPX, about what has transpired so far in 2010.

So the future may indeed to turn out treacherous enough to warrant that steep VIX futures contango, but for now, but the present looks very much like business as usual.

Related posts (just a few of many):


Disclosure(s): neutral position in VIX via options

blog comments powered by Disqus
DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2013 Bill Luby. All rights reserved.
 
Web Analytics