Check out the top 4 stocks to watch in October 2022
tastytrade logo
uploaded image

Jul 26, 2017

Low VIX Breaking Lower

By:Sage Anderson

After a muted first-half to 2017, the VIX has started the second half of the trading year (surprise, surprise!) by going even lower.

On Friday the 21st of July, the VIX logged its second-lowest close ever, settling at a whopping 9.36.

The lowest ever recorded close in VIX history was December 22nd, 1993, when the market's most popular "fear gauge" closed the day at 9.31.

You'd be hard-pressed to fit a piece of loose-leaf paper between the extremely thin margin separating 12/22/93 and 07/21/17 in terms of market volatility - or lack thereof.

Certainly, the summer trading session does tend to be quiet, as is often the case during the period between Thanksgiving and Christmas. From that perspective, it's no great surprise that the VIX has experienced its lowest points during these two periods of the year.

What continues to boggle the mind is the fact that the seemingly tumultuous first six months of Donald J. Trump's presidency have barely registered a blip on the VIX radar.

It makes one wonder what might finally move the needle...and of course when. A market barren of volatility has about the same appeal as a slice of plain toast, and most of us are asking ourselves "what's next?"

A recent episode of Options Jive may help you get a little closer to answering that question.

The segment begins by pointing out that over the last month, the VIX has seen two closes which counted among the Top 5 lowest in history. In order to accentuate that message, the VIX went ahead and closed even lower after show was aired.

The episode next points out that the VIX possesses some very interesting characteristics:

  • Mean Reverting:  VIX tends to move back from its extremes to its mean

  • Clustering: Small changes are followed by small changes, large changes are followed by large changes

Obviously, markets need to be moving in order for the VIX to increase. The chart below highlights how markets with small daily changes in the SPY (and consequently low VIX) tend to cluster:

The Options Jive team then highlights two other periods in market history that exhibited similar conditions. The year 1993 (when VIX hit its all-time low) was one such period, as well as 2007.

Then, they analyzed how the VIX performed in 1993 and 2007 after the market had clustered around some extended periods of low volatility. In both cases, the VIX broke-out and was significantly higher 3-6 months later.

The image below (right-side, bottom) shows the uptick in the VIX after periods of extreme low volatility, in which the market had clustered, as it has done in 2017:

While the past is certainly no guarantee of future performance, the 1993 and 2007 low-VIX periods were both followed by significant increases in the VIX - especially after 3-6 months.

Given that the historical average of the VIX is closer to 19, and it has been idling around 10, it’s no stretch to believe that eventually it will revert towards its mean.

As we know, small ranges in the SPY breed lower levels in the VIX, while wider ranges breed higher levels in the VIX. Therefore, a good indicator that a paradigm shift may be on the horizon will inherently manifest itself as wider trading ranges in benchmark indexes.

We welcome your thoughts on the current levels in VIX and hope you’ll leave a comment in the space below. As always, don’t hesitate to reach out directly at with any questions.

We look forward to hearing from you!

Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on 

tastytrade is a trademark/servicemark owned by tastytrade.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

© copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.