Volatility Index at New Market Highs

We recently produced a chart for this column demonstrating that as the market continued to climb its proverbial wall of worry, so too did the measure of options implied volatility – aka the CBOE Vix index. The chart confirmed that for fresh highs for stocks, predicated upon eternal hopes of a spring rebound in the labor market and therefore growth, the fear gauge was tracking higher. It seems that the decent February employment report, although a step in the right direction, has resolved little. Stocks are suffering from some inevitable ebbing following the latest strong flow. That in turn has prompted further defensive demand for the protection afforded by options. But to put the picture in better perspective, below is a table showing the history of volatility since just before the financial crisis toppled the global economy. The Vix index rose to 14.40 as the S&P 500 index fell back to the flat-line having reached an earlier record high.

Table – CBOE Volatility index – average annual reading 2006 to date

The latest reading matches the average reading for all of 2013, which was 14.25. Prior to that the average reading for all of 2012 of 17.80 was the least volatile since 2008 and as investors started to see the results of firm central bank action, even if it was uncoordinated. And proving that volatility is in a class all of its own, January despite its surge and slump was less volatile on average than both February and March so far.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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