The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.

Is the VIX broken?

This is a question I got from one of my neighbors recently.

It caught me a bit off guard because I don’t really get a lot of financial questions here in Austin.

The professionals around these parts are typically engineers or mathematicians, not traders.

So I was surprised this particular query was posed while casually sipping ranch waters in the backyard.

The short answer is, of course, no. The market’s “fear gauge” is not broken.

However, there is a longer, more nuanced answer that gets to the heart of VIX.

Why People Think VIX Is Broken

It’s this chart:

The VIX failed to break 40 in 2022 and has been in a general downtrend …

With the S&P 500 at new recent lows, this surprises people. But then I point them to this chart, movement of the S&P 500 …

Realized volatility also never broke 40 in the last year.

In addition – and this is important – you have to understand what causes the VIX to truly explode.

Yes, part of it is movement …

But the other is the unknown.

And what is truly unknown about our current economic situation?

The answer is not a whole lot.

So without an unknown, only movement is driving VIX … so it doesn’t break 40.

Now, that being said, there was a major change in trend for VIX in 2022 and into 2023…

I am going to reveal this on Thursday at 5:30 p.m. – and tell you why we’re heading into the volatility trading opportunity of the decade in the coming week. Register now.

Your Only Option,

Mark Sebastian