Pane 1: VVIX appears to have broken support implying lower VIX volatility
Lower VIX volatility typically means lower VIX.
But not always.
Pane 2 and 3: SPY and VIX.
Conclusions:
Recommendations:
*Thanks to @Vaas for input and inspiration !
Trade safe, stay free.
Lower VIX volatility typically means lower VIX.
But not always.
- Consider VIX spiking to 35 and price going crazy. Usually the "volatility event" passes, price and VIX and VVIX all calm down.
- Imagine the same spike to 35, but this time, price goes nuts every day for a week, up 2%, down 2%, up 2%, down 2%, up 2%, and VIX stays at 35 all week long.
- Where does VVIX go as the crazy week plays out?
- - VVIX measures expected volatility of VIX.
- - VIX is at 35 every day. In contrast to the first spike, this is smooth sailing for VIX (regardless of 'price gone bonkers')
Pane 2 and 3: SPY and VIX.
- Are VIX's (red) swings getting larger or smaller?
- Yet VIX is above 90% of its historic readings
Conclusions:
- Dropping VVIX always means a "smoother" VIX
- VIX can get smoother at 9
- VIX getting smoother at 25 is rare (but so is Monkey Pox)
Recommendations:
- Always consider VIX and VVIX together:
- On the same chart (Pane 1 and 2)
- Pane 4: as a product or as a center point (VIX*VVIX)^0.5
- Pane 5: as a ratio VVIX/VIX A "VIX adjusted VVIX"
*Thanks to @Vaas for input and inspiration !
Trade safe, stay free.