Why Is the VIX Not Moving?

Why Is the VIX Not Moving?

Posted On May 20, 2022 1:30 pm

The question I keep getting in emails and through Twitter (TWTR) is “Why isn’t the VIX going up anymore on down days?” 

And indeed, it’s true, even as the SPDR S&P 500 (SPY) was making new lows last week, the VIX, which measures the implied volatility of SPY options and is often referred to as “the fear index,” also declined.  Since May 2nd the VIX has declined some 15% from its high of 36, even as the SPY has tumbled some 6% to a new YTD low during that time period.  So, what is going on? 

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My quick take I posted on Twitter earlier this week: 

Basically, my belief is that as funds/institutions sell stock holdings to reduce exposure and risk, they are also selling/closing their hedges as they simply don’t need as much downside protection.    

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Indeed, a report from the National Association of Active Investment Managers (NAAIM) equity exposure has experienced a precipitous decline over the past few weeks. 

That said, it is somewhat confounding that the 10-day realized volatility is 32.5%, which reflects the fact the SPY has moved an average of 2.1% each day. The VIX—even with SPY back to lows at midday– remains at 29%, which implies a daily move of just 1.9%, meaning the VIX is at a discount or underpricing the actual market movement.  This is rare to see for any extended length of time and I’ll admit to not being sure what to make of it. 

Maybe because everyone is waiting for the big bear market rally to sell or a washout capitulation that sends the VIX above 40 to signal a bottom we will get neither.  As I’ve said before, we might be at the stage of the bear market of just a steady, stair step down for the next few months. 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.