Tuesday, January 6, 2015

2014 Had Third Highest Number of 20% VIX Spikes

By most measures, one would think that 2014 was a relatively quiet year for the VIX and equity volatility in general. In fact, the average VIX of 14.19 was the lowest for the full year since 2006 and the third lowest going back to 1995. Of course, averages can be misleading and just as you can drown in a river with an average depth of one inch, anyone who was short the VIX when it spiked all the way up to 31.06 in October knows that minimum and maximum readings are important.

With this in mind, the chart below shows the number of 20% one-day VIX spikes per year, going back to 1990. Note that when looked through the lens of those 20% spikes, 2014 was the third most volatile year for the VIX since 1990, with the same number of 20% VIX spikes as 2008! Additionally, if one were to round up a near miss from December 8th, last year would move into a tie for the #2 slot, just behind the euro zone carnage from 2011.


[source(s): CBOE, VIX and More]

Perhaps the most interesting thing about the 20% VIX spikes is that two of them came during the last month of the year and with a little rounding, the December 8th spike could have been number three. Toss in yesterday’s 28.1% VIX spike and that is four VIX spikes of at least 19.5% in one month. Uncharted territory? Not quite, with August 2011 having already marched down that path, but something not achieved in any other year, including 2008 or at any time during the bursting of the dotcom bubble.

The have been a number of important changes in the volatility space during the past year or so and going forward I will address quite a few of them, with additional analysis and commentary.

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Disclosure(s): short VIX at time of writing

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