Is the VIX “Low”? SPX Historic Volatility Plunges to 7.88 – By Matt Moran

FRIDAY, MAY 30, 2014 – Lately I have heard inquiries from some stock investors as to whether the CBOE Volatility Index® (VIX®) recently has been at “low” levels; today it closed at 11.40. VIX is a reflection of the market’s expectations regarding future stock market volatility. To gain insights as to what expected volatility could be, options traders examine many factors, including historic volatility, which looks back at the past price movements of securities. Today the 30-day historic volatility of the S&P 500® (SPX) Index dropped to 7.88, its lowest level since August 2013 (source: Bloomberg).

VIX & Hist Vol May 30Over the past year, the average daily closing values have been 14.5 for the VIX, and 11.4 for 30-day historic volatility of the S&P 500 Index. The VIX Index arguably has not been low when compared to the 30-day historic volatility of the S&P 500 Index over the past year.

Below are four key metrics for the daily closing values of the VIX –

  • 20.1     Average daily close for VIX since the inception of its data in 1990;
  • 14.2     Average daily close for VIX in 2014 (through May);
  • 21.4    Maximum daily close for VIX in 2014 (through May);
  • 11.4    Minimum daily close for VIX in 2014 (through May).

In 2014 the VIX usually has been –

(1) higher than 30-day SPX historic volatility, and
(2) lower than the long-term average of the VIX Index.

THE VIX LEVEL AND COVERED CALL WRITING

Other questions I recently heard include (1) Is a “low-VIX” environment not conducive to (relatively) strong returns for covered calls?, and (2) How is the BXM Index doing year-to-date? Some options novices assume that an environment with a high VIX above 30 and high gross premiums always is helpful to covered call writers.
I asked some professional covered call managers whether they thought that covered calls could have relatively strong performance during time in which the VIX is in the range from 12 to 16. The professional managers told me that a high VIX is not always helpful (particularly if the stock market also experiences high realized volatility and big drawdowns), and they told me they believe that an environment that can be helpful to covered calls is one in which implied volatility is higher than realized volatility.

PUT AND BXY UP 5.5% IN 2014 (Y-T-D)

Even though the average daily closing value of VIX has been 14.2 this year, some key option-writing benchmark indexes have done relatively well so far, as both the PUT and BXY Indexes have risen 5.5%. The fact that the S&P 500 Index has had small gains and no losses in each of the last 4 calendar months can be helpful to an OTM buywrite index such as the BXY index. For more information on benchmark indexes, including spreadsheets and white papers, please visit www.cboe.com.benchmarks.

Benchmarks May 30 for VIX Views

The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

Post a Comment

Thank you for submitting a comment. We ask you to use the comment guidelines to promote thoughtful and productive discussions. Your comment will be approved before it will be posted. Thank you for your patience.

Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

  • CATEGORIES

  • Recent Comments

  • Tags

  • authors

  •  

  • Quick Links

  • Blogroll

  • Follow Us

    RSSTwitterFacebookLinkedInYouTube
  • Archives