Wall Street Searching for Clues Behind the VIX’s Very Weird Year
- Tandem moves with S&P 500 are most frequent since 2006
- The rise of short-dated options changes the volatility market
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Wall Street’s favorite volatility gauge has acted so strangely in this brutal year for equities that a debate has emerged over its soundness. Options experts say there’s nothing wrong with the gauge and the reason is the behavior of investors themselves.
The Cboe Volatility Index, the measure of S&P 500 option costs known as the VIX, usually moves in the opposite direction of the stock benchmark, going up when demand for hedges expands in down markets. This year, however, the two gauges have moved in tandem 26% of the time, the most since 2006. And spikes in the VIX have been muted. It topped out at 36, a lower level than during every bear market since 1990.