Yesterday, VIX closed at 32.19, representing a daily increase of 17.96%.
The VIX has definitely been in the spotlight this year, as the global markets have witnessed significant volatility as a result of the Covid-19 pandemic. 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.
The performance of US indices Dow Jones and S&P 500 was further boosted in June and July (so far) which came on the back of the continued positive sentiment on the equity market. On a YTD basis, Dow Jones is down 7%, while the S&P 500 closed yesterday’s session practically flat on a YTD basis. 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, this years 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. It is worth noting that 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 32.19 representing a daily increase of 18%. Such a high increase yesterday occurred amid share price decreases of tech shares (all FAANG stocks observed a share price decrease, with Netflix leading the list (-4.23%)).
However, if we were to compare it to our last update done in late May, the index is also quite up. It is important to add that since our last update VIX observed a spike to 40.79 on 11 June 2020 (+48%), its highest closing level since 23 April. Such an increase was the biggest daily point gain since 16 March. The surge in the VIX came on the back of the fear of Covid-19 resurgence. However, as visible from the graph, VIX has since than seen a gradual decline, up until yesterday.
