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The expected short-term volatility is also called implied volatility and is calculated using the actual option prices traded on the CBOE.
Since 2004, the VIX has also been traded as a futures contract on the CBOE, with trading volumes increasing steadily in recent years.
The lowest value of the VIX was calculated in December 1993 at 8.86 points. The highest value arose in the course of the financial crisis in October 2008 with 89.53 points.
In recent years, the implied volatility has decreased, which can be explained by the generally friendly stock market.
A look at the VIX monthly chart
In the monthly chart shown, you can see the price development of the volatility index future since 2004.
The VIX future moved above 10 points in the years 2005-2007 before the financial crisis.
In the course of the financial crisis the implied volatility then exploded and the index rose sharply, especially in the months September and October 2008.
After that the implied volatility decreased, but also in the years 2010 and 2011 there was always an increase in volatility, as you can see in the chart.
- The weekly chart shows the resistance range
- Volatility Index Future Weekly Chart
In the weekly chart of the volatility future shown above, I have plotted the current resistance range, which is at 20 points.
Here the VIX has bounced several times in the last two years. In the course of the decline in the stock market in the last few weeks, the VIX future has again reached the 20 point mark.
The question now is whether the volatility future will continue to rise and can exceed the resistance in the 20 point range. Let’s take a look at the daily chart, which gives us some more information.
The daily chart at the beginning of an uptrend?
If you look at the daily chart below, you can see the daily price development since September 2011.
The chart shows the 200-day average line.
The volatility index has broken through the 200-day line for the first time in a long while.
I have also plotted the bottom formation in the area of 14 points, which has developed there in the last few weeks.
From a chart technical point of view, the price development looks like the probability for a further price increase has increased.
It now remains to be seen whether and when the 20 point mark can finally be exceeded.
If so, there would then be further potential for a rise up to the 30-point range, which should be accompanied by generally weaker or at least very volatile share prices.
Conclusion of this article on the volatility index
The volatility index (VIX) is just one of many tools we can use to assess the development of the stock market.
I read the index in such a way that the first warning signals for a more volatile stock market are present.
But only at prices above 20 points in the coming weeks would a weak stock market be confirmed by the volatility index.
If you have any questions about the volatility index, please use the comment function at the bottom of this page.