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.