The Volatility Index’s 200 day moving average is 15.94, its 100 day average is 15.01. Its 50 day average dropped significantly to 13.50 with an even lower 20 day average at 13.26. The VIX had been averaging 25.8 from 2008 to 2012, but has now been trading at its lowest levels in six years thanks to a bullish market (even after fears surrounding Cyprus). VIX values greater than 30 are associated with large amounts of investor fear and uncertainty, while values below 20 represent a complacent market.
VIX options are used to hedge against market declines because its value generally increases as stocks decline. The Volatility Index can move sharply, increasing or decreasing significantly in a short amount of time. VIX call volumes have been setting records of late. March 19th set the single-day volume record totaling 1,392,621 contracts. Three weeks earlier the record had been set at 1,388,634. There is a great deal of speculation but no definite answers surrounding the new interest in VIX. Still VIX options are rarely exercised. In 2012 95% of VIX options expired worthless and that trend has continued through March of this year.
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Edmund Gray
KOTM Contributor
Edmund.Gray@gmail.com