How typically does the VIX go above 60?
The reply isn’t fairly often.
Over the previous 20 years, the VIX has gone above 60 solely 3 times.
Contents
As we’re in September 2024, right here is the month-to-month chart of the VIX:
Don’t fear if the chart is just too small.
We’ll zoom in later.
So long as you possibly can decide the yr on the underside axis, you possibly can see that the timing of VIX going above 60 corresponds to the 2008 monetary disaster and the 2020 Covid pandemic.
Then the VIX went above 60 once more on Monday, August 5, 2024:
Nonetheless, on that day, the VIX was above 60 for under about half an hour.
But it surely nonetheless counts.
The VIX was above 60 for a number of days within the different two cases.
Throughout the peak of the monetary disaster, the excessive VIX lasted from October 9, 2008, via December 5, 2008.
However, there have been a number of days when the VIX was beneath 60.
Throughout the Covid pandemic, VIX was above 60 from March 11, 2020, via March 30, 2020 – practically three weeks.
Earlier than we go any additional, maybe we must always clarify what the VIX is.
Whereas a few of you already know and might skip this part, we like to write down for readers of all ranges.
VIX is the Volatility Index of the S&P 500 index (SPX). You may see the worth of the VIX as calculated by the Chicago Board Choices Change (CBOE) by typing it in because the ticker image in your charting software program.
Its worth is derived from the costs of SPX index choices with shorter-term expiries.
The VIX represents the 30-day ahead projection of SPX volatility.
The VIX is typically often known as the “Concern Index” as a result of it goes up when a sell-off within the SPX makes traders “fearful.”
When the SPX worth drops considerably, traders purchase extra protecting put choices in relation to name choices.
This causes the worth of put choices to go up, and the calculated VIX worth goes up.
Throughout the monetary disaster, the SPX was already experiencing a downtrend.
On October 9, 2008, when the VIX surpassed 60, the SPX was on its seventh consecutive red-candle down day.
Whereas it might not look scary in a historic chart that’s greater than 15 years in the past, I’m positive some traders on the time have been fairly fearful.
The 2020 market crash appeared extra fearful on the chart as a result of it occurred extra abruptly.
On March 11, 2020, when the VIX went above 60, the SPX was already on its second leg down.
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The VIX spike above 60 on August 5, 2024, shocked many traders (together with seasoned ones).
From the shut of Friday, August 2, to the open of August 5, the SPX gapped down from 5346.55 to 5151.14, an enormous 195-point drop:
And it did break the help stage at 5200.
Throughout the weekend in a single day hours, Japan had a 12% sell-off as their banks tightened financial insurance policies to stabilize the yen.
This additional exacerbated investor fears of a recession along with the sell-off on the Friday earlier than.
That Friday, the discharge of financial knowledge reported that non-farm payroll was decrease than anticipated, the unemployment charge got here in increased than anticipated, and manufacturing facility order stories missed expectations considerably.
The market was in an overbought situation, and these is likely to be the information catalysts that drove the worth again down.
Throughout the 2008 monetary disaster, the VIX Futures time period construction was in backwardation from October 16, 2008, to December 10, 2008.
It was probably in backwardation earlier than then when VIX went as much as 60, however I don’t have knowledge again that far.
For the pandemic VIX rise in 2020, the VIX futures went into backwardation on February 24, 2020, weeks earlier than the VIX reached 60 on March 11.
It continued to be in backwardation till Could 7, when the primary two months of volatility got here again into contango, despite the fact that the remainder of the curve nonetheless seems to be in backwardation:
For the VIX spike on August 5, 2024, the market was additionally in backwardation on that day.
And didn’t get again to contango till August 14.
The VIX hardly ever goes above 60.
When it does, it’s typically accompanied by the VIX Future time period construction going into backwardation earlier than or on the day of that occuring.
It occurred 3 times up to now 20 years:
In 2008, many of the nations on the planet have been in a monetary disaster.
In 2020, the world was in a pandemic brought on by a brand new virus.
In 2024, the fears of recession because of financial occasions.
If the VIX does go above 60, it could be because of some main geo-political or social-economical or some worldwide occasion that might be on the information that everybody would learn about.
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Disclaimer: The knowledge above is for academic functions solely and shouldn’t be handled as funding recommendation. The technique introduced wouldn’t be appropriate for traders who will not be conversant in trade traded choices. Any readers on this technique ought to do their very own analysis and search recommendation from a licensed monetary adviser.
