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The CBOE Volatility Index (.VIX) saw a wild day of action Thursday. The market's Fear Gauge, which tracks the expected volatility priced into S&P 500 Index (.SPX) options, finished Wednesday at 36.22 and its highest close since October 2002. It opened Thursday's session at 36.1 and, after easing a bit in morning trading, saw a big spike in midday action. Shortly after 1:00 p.m. Eastern time, VIX had rallied to 42.16 and its best levels since October 9, 2002. However, another reversal sent the volatility index lower in afternoon action and by the closing bell, it was down 3.12 points to 33.10.

Thursday's 9-point trading range in the VIX is rare. In fact, going back to early 1992, the volatility index has only seen one intraday move larger than Thursday's. On October 28, 1997, VIX traded in a 14.47 point range after hitting a high of 48.64 and a low of 30.69. Like Thursday, the index finished lower on the day, falling from 45.69 to 31.22. So, what happened to the equity market the day after that big intraday move on October 28, 1997? Figure 1 shows the action in the S&P 500 Index at that time. Interestingly, that day marked an important turning point for the S&P 500.

Figure 1: S&P 500 Bottom on October 28, 1997

On a percentage basis, the difference between the VIX's high and low on Thursday was 25 percent. VIX opened at 36.10 and the day's range was 9.06, which equals 25 percent of the VIX's value at the open. There have only been three other times the VIX has seen intraday moves of 25 percent or more, and also finished the day lower. For example, on July 16, 2006, VIX fell from 20.28 to 20.10. The modest decline occurred amid a big intraday move. The high and low that day was 27.05 and 19.48. The difference of 7.57 represents 37.3 percent. Figure 2 shows the price action in the S&P 500 in the period that followed the big swing in the VIX on July 16, 1996.

Figure 2: S&P 500 Bottom on July 16, 1996

More recently, the volatility index saw big intraday moves on June 15, 2006 and March 14, 2007. In the first case, VIX finished the day down 5.15 points to 15.9. The index traded in a range of 21.14 to 15.65, or a 5.49 point range. That, in turn, represents 26 percent of its value at the start of trading on that day. Figure 3 shows the price action of the S&P 500 in the period that followed.

Figure 3: S&P 500 Bottom on June 15, 2006

Finally, on March 14, 2007, VIX slipped .36 points to 17.27. Although the daily swing was mild, the intraday move was quite large. The volatility index hit a high of 21.25 and a low of 16.75. The day's range was 4.5 points or 25.5 percent. The last chart shows the rally in the S&P 500 that followed.

Figure 4: S&P 500 Bottom on March 14, 2007

In conclusion, the big intraday moves in the VIX seen Thursday are extremely rare. In fact, there has been only one time in the past 16 years that the volatility index has seen a daily price swing greater than Thursday's 9-point move. There have been only three times that it has seen a greater percentage move. Interestingly, all four of those occasions (7/16/1996, 10/28/1997, 6/15/2006, and 03/14/2007) have marked washed out trading sessions and the beginnings of a significant rally for the S&P 500.

Source: The VIX and V-Shaped Bottoms