YTD Movement of VIX

Yesterday, VIX closed at 22.54, one of the lowest levels since the outbreak of the pandemic.

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 July and August (so far) which came on the back of the continued positive sentiment on the equity market. On a YTD basis, Dow Jones is down only 3%, while the S&P 500 has fully recovered and is up 4.5%. 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.

YTD Performance of VIX

Since, the S&P and VIX are negatively related, this year’s 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 increased by 63.6% and currently stands at 22.54. However, since its peak in March the index has been gradually decreasing as the sentiment on the equity market has continued, while the current level is one of the lowest levels since the outbreak of the pandemic.

VIX vs S&P500 (2003 – 19 Aug 2020)*