#VIX acting like a magnet – back in the low-to-mid teens

Key Concepts

• VIX (CBOE Volatility Index): A real-time market index representing the market's expectation of 30-day forward-looking volatility. Often referred to as the "fear gauge."
• S&P 500: The Standard & Poor's 500 Index, a stock market index representing the performance of 500 large-cap companies in the United States.
• Volatility: The degree of variation of a trading price series over time, measured by the standard deviation of price changes.
• Spikes (in VIX): Sudden, significant increases in the VIX, typically indicating increased market uncertainty or fear.

VIX Level and Recent Movement

The discussion centers on the current level of the VIX, specifically noting its recent movement. As of the date of the conversation (following Friday, the 26th), the VIX was in the low 13s. However, it experienced a rise to the upper 14s during the current day of discussion. This movement is described as a return to a level where the VIX seems to gravitate, acting almost like a “magnet.”

Historical VIX Behavior & Pullbacks

Throughout the year, the VIX has experienced several “huge spikes,” but has consistently failed to sustain those higher levels. Following these spikes, the VIX has repeatedly “pulled back,” meaning it decreased in value. The speakers specifically mention periods where the VIX exceeded 20, but subsequently declined. This pattern suggests a tendency for the VIX to revert to lower levels despite periods of increased market anxiety.

Current VIX Assessment & Potential Inflation

The speakers assess the current VIX level in the upper 14s as potentially “a little inflated,” particularly when considered in relation to the recent movement of the S&P 500. This implies that the level of volatility implied by the VIX may be higher than warranted given the actual price fluctuations observed in the broader market (S&P 500).

Logical Connection & Perspective

The conversation establishes a connection between VIX levels, market spikes, and subsequent pullbacks. The perspective presented is that the VIX often overreacts to market events, leading to temporary spikes that are not sustained. The assessment of the current VIX level suggests a belief that the market may be pricing in more volatility than is currently justified by market conditions.

Notable Statement

“It’s almost like a magnet for the VIX.” – Pete, describing the VIX’s tendency to return to a specific level despite fluctuations.

Synthesis/Conclusion

The main takeaway is that the VIX is currently in the upper 14s after experiencing spikes and pullbacks throughout the year. The speakers suggest this level might be slightly high considering the recent performance of the S&P 500, indicating a potential overestimation of future market volatility. The historical pattern of VIX spikes followed by pullbacks highlights its dynamic and often reactive nature.