Chart of the Week: Volatility Index

by: Barry Ritholtz

Back in January 2006, I suggested that the period of long placidness in markets was coming to an end, and that it was a good trade to Buy Volatility.

That turned out to be an even better trade than I hoped/feared: Here's a nice looking graph from the National Post, showing the record highs in the VIX:

Market Volatility Reaches Depression-Era Levels

Sources: Bloomberg News, Andrew Barr, National Post


"Market uncertainty has caused the S&P 500 index to swing at least 1% in either direction on 53% of all trading days this year. That makes the current period of investing the fourth-most volatile period ever, and pushes it past 2002 levels to be the most volatile since 1938, during the Depression era. [T]here was a good chance the current market will break the 1938 record, when the index rose or fell by at least 1% on 57% of trading days over the equivalent period...

The better equity market performance caused the Chicago Board Options Exchange Volatility Index, a key measure of future market volatility, to fall 0.89 points yesterday, or 3.3%, to 25.73. Over the past year, the index has traded at a low of 11.46 and a high of 37.57.

"We're in a period where nobody quite knows if there's another Bear Stearns (NYSE:BSC)out there, and as long as that kind of environment is pervasive, I think you'll continually to see these big upside and downside days," he said, adding his firm increased its cash investment position last summer to avoid the wild equity market swings. Mr. Bjorgen said even professionals were unsure where to put their money or how long the volatility will last.

Good stuff...

Volatility highest in 60 years Likely To Continue
Alia McMullen
Financial Post Tuesday, March 25, 2008