Also, buying stocks when the VIX spikes above this level doesn’t guarantee immediate profits. For example, three months after the VIX peaked at 80 in late 2008, the S&P 500 was essentially unchanged, the strategist pointed out. “It took a year to generate a 25% return,” he added.

Investors can use exchange traded funds and notes tracking VIX futures to hedge portfolios or speculate on volatility. However, it should be stressed that volatility-linked ETFs follow VIX futures rather than the spot price. The VIX essentially measures the cost of options-based “insurance” over the next month.

“The ‘background noise’ of financial risk seems to have increased since 2008, meaning that the VIX is probably not overbought until it gets into the 50s,” Colas wrote. “Even if you do buy risk assets as the VIX crests over 50 (or 60, or 70, or even 80), you are likely in for some volatility in the months after that theoretical peak in the VIX. As highlighted, buying the U.S. equity market as the VIX printed 80 in October 2008 did yield a profitable return. But it was not quick or easy.”

Source: ConvergEx

Max Chen contributed to this article.