Market Measures

Relationship Between SPX and the VIX

| Mar 22, 2016
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    Market Measures

    Relationship Between SPX and the VIX

    Mar 22, 2016

    There is a high negative correlation between the S&P 500 and the VIX but beyond the simplistic level we were wondering, how many S&P points down does it take to increase the VIX by one? So of course our research team ran a study and we have the results here.

    The CBOE Volatility Index, commonly known as the VIX, is calculated from options on the SPX cash index expiring between 23-37 days.. This gives the market’s anticipation of implied volatility (IV) for the next 30 days. When the market makes a larger move down traders look for protection and bid up puts which increases the VIX. Historically, investors have been afraid of a large down move and not a big up move since most investors are long stocks.

    A table of the median 30-day correlation between the SPX and the VIX was displayed. The table included the 10 year, 5 year and 1 year correlation. The table showed that in the last year the negative relationship has become stronger. A study was conducted comparing the S&P 500 (SPX) and the CBOE Volatility Index (VIX) from 2006 to present. Each day with an SPX movement greater than 0.5% calculated the ratio between the SPX and the VIX movements. We filtered based on the past 1,5, and 10 years.

    The study revealed changes and a solid rule of thumb that can be used to predict how much the SPX needs to decline for a one point move in the VIX and what it took previously. The information here will improve your market awareness and a give you a better understanding of volatility and volatility products.

    Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the important takeaways and the results of our study on the relationship in points between the SPX and the VIX.

    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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