With unfavorable news popping up almost around the world, global markets are on the fritz. Even volatility exchange traded funds (ETFs) are experiencing greater volatility in the underlying volatility index.
The CBOE Market Volatility Index, also known as the “VIX” or the “fear gauge,” has a 20.38 historic average and a 18.32 average so far this year, reports Jeff Kearns for Bloomberg. The VIX measures how much people are willing to pay to buy or sell the S&P 500 in 8 to 60 days. The idea is that investors are willing to pay more as the uncertainty is high. The VIX is quick moving and usually spikes when stocks sell off. [VIX ETF and ETN Options for Volatile Markets.]
Since its inception in 1990, the VIX has spiked by double digits on consecutive trading days only 16 times. One of those times was this week. The VIX surged 21% to 29.40 on Wednesday, the benchmark’s highest close since July. The benchmark has climbed 46% in the last three days as traders bought more options to guard against declines related to the nuclear problems in Japan. [ETF Plays as Volatility Returns.]
We’ve seen volatility lately with instability in the Middle East, destruction in Japan, sovereign risks in Europe, and concerns over global economic conditions.