With the $VIX currently around 17, some would argue it's getting low. Some may even be tempted to start buying things like $VXX and $UVXY in anticipation of the next #volatility spike (I can't say don't, but... don't)
But is a VIX of 17 actually below average?
But is a VIX of 17 actually below average?
With the long term VIX "mean" of 19.46, it seems pretty clear we're well below average right now.
Mean: The average of a set of numbers. You just add the values up, divide by the # of values, and that's the mean.
Example: 3, 3, 4, 6, 9
Mean = (3 + 3 + 4 + 6 + 9) / 25 = 5
Mean: The average of a set of numbers. You just add the values up, divide by the # of values, and that's the mean.
Example: 3, 3, 4, 6, 9
Mean = (3 + 3 + 4 + 6 + 9) / 25 = 5
But we could argue that the "Median" is more useful.
Median: The middle number in a series of numbers
In our example, the median of 3, 3, 4, 6, 9 = 4
The Long-term Median of the VIX is 17.44
Median: The middle number in a series of numbers
In our example, the median of 3, 3, 4, 6, 9 = 4
The Long-term Median of the VIX is 17.44
Since the VIX can get to extremely high values, like the 82.69 it hit on March 16th, 2020 for example, those values pull up the long term mean significantly and can skew the data.
* Using the old VXO calculation, on Black Monday Oct 87' we may have seen a VIX over 150
* Using the old VXO calculation, on Black Monday Oct 87' we may have seen a VIX over 150
Mode: The value that occurs most frequently in a series
Mode: (3, 3, 4, 6, 9) = 3
The Mode of the VIX index is in the 12's. That means of all the values in the range, VIX in the 12's is the most common.
Mode: (3, 3, 4, 6, 9) = 3
The Mode of the VIX index is in the 12's. That means of all the values in the range, VIX in the 12's is the most common.
If you're the type of trader that's always expecting the VIX to "mean revert" to 20, you've likely burned through significant capital over the years hedging and trying to time volatility spikes.
On the other hand, traders who expect the VIX and volatility markets in general to "mode revert" back closer to the 12's and 13's have a higher probably of riding equity trends higher, and finding clever ways of shorting volatility lower.
Volatility seeks lower levels
- VIX futures spend the majority of time in Contango
- 9-day VIX9D spends most of it's time below the 30-day VIX
- 30-day implied volatility is normally above 20-day realized volatility
- Long Vol ETPs like $VXX spend most of their time bleeding
- VIX futures spend the majority of time in Contango
- 9-day VIX9D spends most of it's time below the 30-day VIX
- 30-day implied volatility is normally above 20-day realized volatility
- Long Vol ETPs like $VXX spend most of their time bleeding
While it's technically true that the average VIX is 19.46, in a practical sense the other ways to measure average (median and mode) are far superior and give a much better sense of what the true average is
Gun to my head, the "Average VIX" is around 14
Gun to my head, the "Average VIX" is around 14
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