A Look at the Standard Deviation Move in the VIX

• stevenplace
• January 28th, 2011

While I’m not a big fan of looking at percentage changes on the VIX (it’s not a stock, it’s a variance measure!), we can clearly see that something is structurally changing with respect to the perception of risk. Take a look at this chart, you need to click to enlarge:

This is a movement related to the standard deviation and some other historical volatility. It’s a measure derived from Jeff Augen’s books. The yellow line is a 4 standard deviation move relative to the past 20 days historical volatility. When we break above that, it means that the premium is significantly spiking due to perceptual shifts in risk.

Here are the dates when we’ve seen this spike (I’m just eyeballing the chart):

8/17/2009

10/30/2009

1/21/2010

1/22/2010

4/16/2010

4/27/2010 (largest reading since today, that was before flash crash)

If you look at the price action in the SPX, the readings in 2009 were near intermediate term bottoms, and the readings in 2010 required a little more bloodletting before any tradeable bottom.

Either way, it’s fun again in volatility land.

Edit: This is a small sample set and I’m just eyeballing it. Place your own bets.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: spx, vix, volatility

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