“But be careful if you think the VIX has nowhere to go but higher – in 13 of the last 22 years, the ‘fear index’ has bottomed somewhere between November and January. August saw the low VIX for the year only once, in 2000,” said Nicholas Colas, ConvergEx Group chief market strategist, in a note.
Although the spot VIX is at a multiyear low, VIX futures suggest investors expect market volatility will pick up in the coming months. The VIX futures curve is the steepest since the financial crisis.
“In practice, the [spot]VIX measures expected changes in stock prices over the next 30 days. That’s it. It is heavily informed by recent actual volatility,” Colas wrote.
“A VIX reading of 14 shouldn’t make anyone, anywhere, feel more confident about what will come down the road in October or beyond. It is simply the relative assurance that the weather will be clear tomorrow,” he said. “Volatility, like the weather, changes with the seasons and other factors. And even if you are sleepwalking, it is wise to take an umbrella.”
CBOE Volatility Index
Full disclosure: Tom Lydon’s clients own TVIX.