Market Measures

IV Levels | Historical Movements

| Aug 13, 2015
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    Market Measures

    IV Levels | Historical Movements

    Aug 13, 2015

    This segment reveals the results of two different studies examining the actual historical moves versus the expected moves derived from implied volatility. The interesting results should enhance your trading.

    The VIX represents the 30-day, annualized, 1 standard deviation (SD) range for the SPX. Theoretically, 1 standard deviation from the mean should encompass 68% of all outcomes. That means that 68% of the time the SPX should close within the 1 SD move predicted by the VIX.

    Previous Market Measures studies (3/17/15) have shown that implied moves have historically been overstated when compared to actual moves. This study looks at the historical directional moves and the percentage of overstatement at different VIX levels.

    A study was conducted each 30 day period from 1990-present (6,428 Observations). At the beginning of each period we calculated each 30 day return in the SPX when the VIX was at below 15, between 15-20, between 20-25 and above 25. Essentially looking when volatility was cheap, average and expensive.

    A table was displayed of historical 30-day SPX moves with the VIX level below 15, between 15-20, between 20-25 and above 25. The table showed the results including average up move, average down move, and standard deviation of returns.

    When IV is extremely low we see, on average, larger up-moves than down-moves. This makes sense since when IV is low we are generally in complacent, increasing markets but when markets are less complacent and IV picks up, we see larger down-moves than up-moves, on average.

    A second study was conducted each trading day from 1990-present. We compared the average 30-day implied move to the average actual move in the SPX when the VIX was less than 15, between 15-20, between 20-25 and greater than 25.

    A second table was displayed of historical 30-day SPX moves with the VIX level below 15, between 15-20, between 20-25 and above 25. The table showed the results including average implied move, average actual move, standard deviation of moves and average implied-average actual.

    Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista to learn the takeaways and to find out how high IV effects your “bang for your buck” and when to scale or ramp up into your trading.

    This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.

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