Options Jive

Comparing Movements in SPX and the VIX

| Jul 26, 2016
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    Options Jive

    Comparing Movements in SPX and the VIX

    Jul 26, 2016

    We’ve received numerous emails asking about the relationship between the SPX and the VIX. Our traders aren’t looking for a complex formula with intricate calculations. They are looking for more of a “back of the envelope” method and a better understanding of what a percentage move in the SPX will mean for a point move in the VIX. Since we are often short Implied Volatility (IV) it is obviously something worth knowing. Here is our answer and how we derived it.

    The formula we used to compute the ratio between the SPX and the VIX was displayed. We divide the change in the VIX by the S&P percentage return. So if the SPX was down -4% and the VIX return was +5 points over the same period, the ratio would be: 5 / (-4) = -1.25.

    A table showed the ratio for SPX movements of +/-0.5%, 1.0%, 2.5% and 5% for 1 day, 3 day, 5 day and 10 day periods. The table showed that regardless of the time frame or percentage change in the SPX the ratio averaged around -1.00. This means that the VIX point change tends to mimic the SPX percent change. A graph of 3-day VIX changes relative to 3-day SPX returns (when greater than 1%) further demonstrated the relationship of a -1.00% return in the SPX leading to a +1 point move in the VIX. Please note, that this ratio is based upon recent data from the SPX and the VIX. This ratio may change over time.

    For more on the VIX and SPX see:

    Watch this segment of Options Jive with Tom Sosnoff and Tony Battista for the key takeaways and the handy back of the envelope calculation to know how much the VIX will move against a move in the SPX.

    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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