VIX, a measure of market volatility is on its path to shatter the all time-low, last set in 1993.
The CBOE Volatility Index, known as Wall Street’s “fear gauge,” was recently down 3.3% at 9.12 Tuesday, on track to shatter its previous closing low of 9.31 set on December 22, 1993. Earlier, it fell as low as 9.10. The index was launched in 1993 and uses S&P 500 options prices to project expected stock market swings over the next 30 days.
VIX tends to rise when investors expect a crash, when markets are falling, and when investor anxiety is high. Quite the opposite is currently occurring; markets are rising as earnings and business sentiment is high across the world.
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With a close under 10 on Tuesday, the VIX will have closed in single digits in nine straight sessions—by far its longest streak ever. The previous record of four was set in December 1993, and the VIX closed under 10 just four times from 1995 to 2016.
What could happen is the calm markets could experience a massive upward trend in volatility if stocks fall from the current market records.
As The Journal’s Morning Moneybeat newsletter noted, a popular bet against the stock market’s “fear gauge” also hit a fresh milestone Monday. Exchange-traded products designed to “short” futures on the VIX have doubled in price this year.
No one really knows for sure what the VIX levels tell us about the market. Some argue that it shows investor complacency, and some argue that it isn't representative of market fear. Also many professors have asserted that the VIX can be manipulated, another indicator of why we shouldn't look at VIX.
What do you guys think? Should we be looking at the VIX for market indicators? What do you think lies ahead of us? Is the low volatility showing us that we have nothing to worry about or perhaps it is too calm to be true?
