Stock Market Volatility

Market volatility appears to be decreasing.  We've had some decent-sized market moves recently, but the CBOE volatility index (VIX) has been trending lower (currently under 56) since reaching an all-time high (twice the index barely closed over 80) in recent weeks.

This provides an interesting opportunity for traders:
 

  • You can take the stance that market volatility has peaked and is headed lower
  • You can look at this as bargain time and buy calls and/or puts 


If you decide to adopt the latter strategy, please be careful.  A serious decline in market volatility can be costly.  As Bill mentions in his VIX and More blog:
"The last
time the VIX closed under 60 five days in a row was on October 8th.
Just to set some historical context, the VIX was trading in the 30s at
the beginning of that five day stretch."

Although it's difficult to conceive of VIX trading in the 30s anytime soon, it can drop from current levels.

Tough decision.  IV levels are still much higher than they have been, on average, but we cannot be certain that new VIX record highs are not in our future.

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