As usual, a great volatility explainer thread from Benn👇. It’s true that the market and VIX *usually* have a negative relationship. (The market tends to fall faster than it rises, there may be more hedging demand during downturns, …) But… 1/4
… markets *can* rise quickly, and volatility—both realized and implied—can be high during rallies. As it is now!
The relationship between VIX and the market is NOT always linear. Not even close. However, if you started paying attention recently… 2/4
The relationship between VIX and the market is NOT always linear. Not even close. However, if you started paying attention recently… 2/4
…the (negative) VIX–market relationship probably looked *very* linear. In fact, as of ten days ago, the linearity was arguably the strongest it had *ever* been in the VIX’s 30-year history!
But that was ten days ago. Things change, and… 3/4
But that was ten days ago. Things change, and… 3/4
…it’s been… different.
From a VIX near historic highs, it fell at the same time markets did. We had three of the ten largest ever “weird” VIX declines (relative to market returns).
And with markets *rising* unusually quickly, vol remains high. 4/4
From a VIX near historic highs, it fell at the same time markets did. We had three of the ten largest ever “weird” VIX declines (relative to market returns).
And with markets *rising* unusually quickly, vol remains high. 4/4
