CBOE Market Volatility: What Does It Mean?

05/26/2010 12:01 am EST


With the VIX flashing in the high 30's and the smell of fear/panic everywhere, wouldn't you think we would see some big drop days? Oh sure, last week we had one—on Thursday, the SPX dropped 45 points, or nearly 4%. But that was eight days after a 49-point move up. 

Does the elevated VIX mean we go down big? Well, yes and no. Actually, the higher volatility only means we should expect wide moves, but generally, these are associated with fear, protection, and not outright buying. 

Historically—and recent history is a guide—we have seen big blowouts of volatility, but they don't last too long. Fear and panic are short-term in nature and will generally reverse when it hits a crescendo. So far though, markets have been selling off rather orderly. 

For now, that is the case. I call your attention about similarities in the VIX chart between September 2008 and now; eerily similar (see below). Do you see it?

Click to Enlarge

Click to Enlarge

By Bob Lang of BigTrends.com

Related Articles on STRATEGIES

Keyword Image
Pensions Have a Problem
04/19/2019 9:24 am EST

U.S. public pension liabilities have increased 64% since 2007, with just a 30% rise in assets....

Keyword Image
Yield Curve Hype
04/04/2019 2:32 pm EST

Despite what you heard, there has not been an official (10-year/two-year Treasury spread) yield curv...