For today, we decided to present you with a YTD movement of VIX, which has observed a significant drop in the past 2 months.

The VIX has definitely been in the spotlight since the outbreak of the Covid-19 crisis, as the global markets have seen quite significant volatility. VIX, also known as the fear index, is calculated based on the S&P 500 options and reflects market expectations on (implied) volatility in the coming 30 days.

Unlike classic indexes, VIX’s growth represents negative sentiment or increased risk of market volatility. VIX levels over 30 could be considered risky as the market is expecting high volatility.  On a YTD basis, US indices S&P 500 and Dow Jones have observed decreases of 8.5% and 14.3%, respectively, as April and May brought a partial rebound of the indices. Meanwhile, earlier this year, both indices observed a decrease higher than 20% in less than a month (compared to the 52-week peak) witnessing the fastest bear market in history.

VIX Movement YTD

Since, the S&P and VIX are negatively related, the recent market conditions (the combination of Covid-19 outbreak and an oil price war between Russia and Saudi Arabia) have led to a surge in the VIX index. As visible on the graph below, VIX was last time seen at the levels observed this year during the financial crisis in 2008. In March, VIX observed two sharp daily increases this month. The first one was on 12 March, which coincided with President Trump introducing the European travel ban. Meanwhile, on 16 March the index reached 82.69, which is the highest value since the CBOE (Chicago Board Options Exchange) introduced the new methodology for the index in 2003.

Since the beginning of the year, VIX has more than doubled and currently stands at 28.16 (which is one of the lowest values since the Covid-19 outbreak). However, if we were to compare it to the peak observed in mid March, the index is down by 66%. Compared to end of March, the figure is 47.4% lower, indicating that the implied volatility of the S&P500 is currently quite lower than it was almost 2 months ago.

VIX vs S&P500 (2003 – 22 May 2020)*

*indexed value relative to base year (2003)