The VIX Hits a Low for the Year

The CBOE Volatility Index, or the VIX, closed at 10.5 yesterday, the lowest point of the year. The VIX measures the volatility implied in index options contracts. The VIX is also very close to its lowest point in 13 years.
What does it mean? That’s hard to say. Volatility is a hotly debated topic among technical analysts. Personally, I haven’t found much predicitve power in the VIX.
Here’s a scatterplot of the VIX and how the S&P 500 has done for the following six months. The VIX is the horizontal axis, while the market’s return is the verical.
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This looks pretty random to me. The closest I can come up with is that high points in the VIX signal major turning points in the market, while lower points signal a continuation of the trend. For example, when the VIX is below 14.7, the market has never (since 1990) lost more than 6% six months later.

Posted by on November 15th, 2006 at 6:52 am


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