Wednesday, December 16, 2009

Historical Volatility Pointing to a Sub-20 VIX

Just as I get in an extended discussion of historical volatility (HV), I note that the combination of 10/20/30/50/100 day HV has plummeted to levels not seen since mid-October 2007, which happens to be one week after the all-time high in the S&P 500 index.

It is worth noting that back in mid-October 2007 when the similar HV numbers were posted, the VIX was hovering around the 18.00 level.

With the VIX Holiday Crush starting to kick in and the drama associated with today’s FOMC meeting now behind us, I now believe there is about a 50% chance that the VIX dips below 20 in the next two days, even with the E-mini S&P 500 futures (/ES) down 4.50 as I type this. The alternative, which has been the status quo as of late, is that the 20 area acts as support for the VIX and triggers resistance in stocks.

Now the VIX does not have to follow historical volatility religiously, but if HV continues to fall, the case for a 20+ VIX will deteriorate rapidly. Substantial divergences tend to have a relatively short life. With the current divergence now at six trading days, the VIX can only defy gravity for a short while longer…

For more on related subjects, readers are encouraged to check out:

Disclosure: none

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 © 2007-2023 Bill Luby. All rights reserved.
Web Analytics