The ratio of the 20 bar historic volatility (HV20) to the VIX is at 1.08 which suggests market equilibrium at the close last week.
When the VIX and the HV20 are in equilibrium, the ratio is around 1.0 .
Here's the math: VIX 12.2 / HV20 11.3 = 1.08
Typically the ratio can reach approx 2.0 when the VIX 'fear index' is double that of the HV20. This can serve as a leading indicator or warning signal to traders that the market is anticipating a move to the downside which is larger than has occurred over the past month. When fear of a sell off increases the VIX rises as traders hedge SPX positions using options. A ratio of 2.0 can signal a high in the SPX trading range.
The ratio can drop down to 0.5 when the buyers step in and the VIX fear index drops to half that of the lagging HV20 which remains elevated. The VIX deflates faster than the lagging HV20 (while the SPX price recovers and investors BTFD). This occurred in April as buyers stepped in to bid up the SPX after the sell off earlier in the year.
The 10 year standard deviation range of the HV20 ranges approximately from 7.4 - 23 with a 10 year average around 15. In comparison the 10 year average range for the VIX is 16.5.
At this point the HV20 may continue deflating to drop to below 7 range as buyers bid up the price of the SPX. The ratio could climb once again towards the 2.0 range signally another warning sign to expect higher volatility in the days ahead.
When the VIX and the HV20 are in equilibrium, the ratio is around 1.0 .
Here's the math: VIX 12.2 / HV20 11.3 = 1.08
Typically the ratio can reach approx 2.0 when the VIX 'fear index' is double that of the HV20. This can serve as a leading indicator or warning signal to traders that the market is anticipating a move to the downside which is larger than has occurred over the past month. When fear of a sell off increases the VIX rises as traders hedge SPX positions using options. A ratio of 2.0 can signal a high in the SPX trading range.
The ratio can drop down to 0.5 when the buyers step in and the VIX fear index drops to half that of the lagging HV20 which remains elevated. The VIX deflates faster than the lagging HV20 (while the SPX price recovers and investors BTFD). This occurred in April as buyers stepped in to bid up the SPX after the sell off earlier in the year.
The 10 year standard deviation range of the HV20 ranges approximately from 7.4 - 23 with a 10 year average around 15. In comparison the 10 year average range for the VIX is 16.5.
At this point the HV20 may continue deflating to drop to below 7 range as buyers bid up the price of the SPX. The ratio could climb once again towards the 2.0 range signally another warning sign to expect higher volatility in the days ahead.