In the last 3 days the S&P 500 is up about 200 points.
The VIX though is still about 27%, why?
The 1st sentence answers the second. And I wanna teach you something today.
You see even though the market has rallied, it has not done so in a calm and controlled manner.
Both ATR (the daily average true range of the S&P 500) and 10 & 20 day HV (historical trailing volatility realized volatility) are sky high.
In the chart above the Red Line is LVP’s implied volatility calc for the S&P 500 (similar to VIX), the white line is 10 day HV, the blue is 20 day HV.
Notice both lines are trending HIGHER not lower.
This means that movement has actually picked up in the last few days, even as we approach new highs.
The VIX is clearly positioned for a drop in volatility if you look at the options.
But it is not going to happen until the white HV line is WELL below the Red IV line.
The VIX light is RED meaning that we expect IV to drop in the next 30 days.
Your Only Option,
Mark Sebastian
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