The S&P 500 Vix Narrative
When the capital markets are volatile, movements in an index like the S&P 500 (SPX) are more likely to catch you by surprise. How do we measure volatility?
One such measure is based on the options outstanding on the index with near-term expiration dates: it is an indicator of the speed of price changes. The CBOE1 Volatility Index or VIX is the most widely used. Using the price range and volume of SPX index options, CBOE generates a forward projection (30 days) of index volatility.
I thought it’d be interesting to line up a VIX chart with events during the madness of the last 14 months or so – the idea being that market sentiment is driven by humans who “listen” for signals. Many of these “signals” are generated by government reaction to events.
Before you look at the chart below, just bear in mind that pre-pandemic, the VIX tended to move in a flattish line below the 20 mark.
S&P 500 VIX Narrative Jan 2019 - Apr 2020
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Once known as the Chicago Board Options Exchange, the company has rebranded itself to “Cboe Global Markets”. If you did the Series 7 exam like I did, where CBOE is etched into your brain, that name just doesn’t look right. ↩︎