"More To Come" - Trader Warns VIX Seasonality Suggests "It's Not Over Yet"

Tyler Durden's picture

It was just a matter of time, noted one veteran trader, as VIX smashed higher out of its comfort zone on Friday. This is not completely unexpected as seasonally VIX has bled lower into July then risen notably into November. This year that lines up perfectly withe election uncertainty and as the trader warned, "there's more to come..."


h/t TopDown

As we noted previously, to get a historical perspective on prior periods of similar low-volatility market behavior, we pulled the daily data for the CBOE VIX Index back to 1990.  Since the VIX is closely tied to actual volatility, this is a useful measurement of both current price action and expected near term moves in the S&P 500.  To get a sense of “Structural” volatility expectations through time, we ran a historical one year average VIX level using the daily close for the VIX.  The chart with our findings (1991 to present) is in the attachment to this note, and here is what the data tells us about prior periods of low actual/expected volatility:

Even though the long run average of the VIX is 20 (19.74013, to be exact), there are long periods of time when it can trade consistently below 15 on an average annual basis. That’s not quite one standard deviation (that is 8, or 7.9867 if you want to be precise), but far enough away from the long run mean to be noticeable.


The three times this has occurred since 1990 are:


  • February 1993 to September 1996, when it averaged 13.4 over this 43 month period.
  • February 2005 to October 2007, with an average of 13.2 over 32 months.
  • August 2013 to July 2015, with an average annualized reading of 14.4 over 23 months.


Once the annual average VIX crosses back over 15 on its way higher, it is years before this measure of volatility begins to decline again.


The picture here is essentially one of a pendulum of market volatility, swinging back and forth in very long movements.  Volatility can remain suppressed for years, and we outlined 3 periods where average annual VIX readings are consistently below 15.  The last one of these ended a little over a year ago.  Yes, it may feel like we are still in it (today’s VIX close was 12.3) but recent bouts of market churn (China last year, Brexit earlier in 2016) are holding those averages above 15.  Today’s one year average, for example, is 17.2.

As to where we go from here, the historical patterns are clear.  We had our run of low volatility and it ended last year.  We are now in a new phase where volatility will rise.

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King Tut's picture
King Tut (not verified) buzzsaw99 Sep 12, 2016 10:28 AM

"Everybody needs to STFU and BTFD"- J. Yellen

buzzsaw99's picture

the norwegian blue is just resting. :snark:


Yen Cross's picture

  Ya think???  Thirty Percent moves the index just over four percentage points, and we call that a measure of VOL. Shit--- There should be measure of lack of VIX VOL index. Ohh wait,,, there already is and no one pays attention to it.

SomethingSomethingDarkSide's picture

Manipulators are manupulating the other manipulators.

Keltner Channel Surf's picture

"Tell me when it's over, tell me when it's over

I'd like to know when it's done ..."

Youri Carma's picture

i.a.w. the shit is hitting the fan or the fat lady is approaching the stage, step by step, ready to sing … https://www.youtube.com/watch?v=0vHSBD4s6fE

King Tut's picture

They were shooting for green at 9:11 because of (derp) 

Dragon HAwk's picture

The more complicated something is, the more pieces that fall out when it breaks.

Our Economy here on the planet has gotten real Complicated

marx's picture

Yes yes my little Med Fly.


You serve your master well & you will be rewarded.


I will take you to Jabba Now.

marx's picture

The vix is in.


Shinajo is dee sun

Lmo Mutton's picture

You mean an hfc algo with access to a newsfeed has lost all hope trading with itself and so in a last gasp of dying self awareness it begs for somebody to play with it.

order66's picture

If the Fed loses it's ability to sustain high asset prices (ie: market sell off), they lose everything. Think they're going to let that happen? No way.

They'll just use VIX and oil and gold like they always do.

IntercoursetheEU's picture

VIX history doesn't mean much in manipulated markets. The Fed inspired tail has gradually wagged the VIX dog into rear view mirror predictive status since 2008. Look at the Brexit snapback, and as I write they are papering over the pointless Friday market tantrum with Sept contract smashdown as the expiration date looms. Fed raising rates while they attempt to wheel a barely alive stage manikin off the political stage?? Nope. I'm long, XIV short term.

dark pools of soros's picture

the crash is here..  i see more and more analyist doing heart-to-heart on stocks with 'new price raises and bullshit'  so they can get out at the top before it all boils back down

Yen Cross's picture

  I wonder who's BTFD in equities on low volume?

 These fucking central banks are on the verge of death.