Why Is The VIX So High?

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Why Is The VIX So High?
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• Hi, My name is Steve and Im with Options Trading
  Research, today were reviewing our recently
  published article

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• Why Is The VIX So High?

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• Unless youve had no contact with civilization
  over the past week, youre likely aware that the
  stock market has gone through something of a
  correction. Moreover, volatility has been through
  the roof.

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• In fact, the VIX reached its highest level since
  2011. As a brief reminder, the VIX (SP 500
  Volatility Index) is a measure of implied
  volatility levels on SP 500 options.

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• As many of you know, the VIX is often considered
  the markets fear gauge. Overall market
  volatility is most commonly tracked by watching
  the VIX.

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• Once again, an excellent resource for those who
  are interested in learning more about the VIX is
  the CBOE VIX mini-site. It has a ton of valuable
  information on the index. Follow the link if you
  want to learn more.

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• Its generally a good idea to keep an eye on VIX
  levels (not just as an options trader) to get an
  idea of how concerned the crowd is about a big
  market move.

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• Because the VIX spiked with the big selloff, you
  know investors were basically in panic mode. As a
  quick aside, Ive written a lot about volatility
  in the past, and you can check out this article
  to learn more about why volatility is important.

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• Lets get right to the VIX chart to see what
  happened this past week

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• Its pretty clear to see how much of a spike we
  had in the VIX. The volatility index soared
  higher, before halving its gain over the past
  couple days. Although, relative to the moving
  average the VIX is still trading at high levels.

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• Should the VIX be this high?

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• It really all depends on your perspective. Given
  the steep drop in stocks over a very short period
  of time, you could argue the spike in volatility
  is justified. After all, the SP 500 did take
  something like a 10 beating in just one week.

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• That sort of correction generally does come with
  a certain amount of fear. What tends to happen
  is sharp moves activate margin calls and
  automated selling programs. Those big sell
  programs cause the selloff to snowball even
  further.

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• So from that angle, yes the VIX reaching a high
  of 40 does make a certain amount of sense.

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• So, given the VIX spike, should we be worried
  about even bigger downside?

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• Heres the thing
• The VIX itself didnt reach the levels of the
  2008 financial crisis (and rightfully so).
  However, the speed of the VIXs climb did set
  records.

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• Investors fear was seemingly more pronounced
  this past week than during the 2008 crash. To me,
  that makes absolutely no sense. Yes, Chinas
  economy is a concern (and is what led to this
  selloff to begin with).

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• However, theres a fraction of the risk now than
  there was when Lehman went bankrupt. For some
  reason, investors were very quick to pull the
  sell trigger this past week. Yet, there really
  should be no comparison between this selloff and
  2008-2009.

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• While we still need to pay attention to the VIX,
  Im not overly worried about some kind of market
  crash, or even another 10 correction.

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• The VIX may remain elevated for the time being,
  but we certainly experienced a measure of
  overselling.

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