Market Measures

Monday – Friday | 9:00 – 9:20a CT

Implied Volatility as a Predictive Measure

Market Measures

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

We can use the VIX to gauge the future volatility in the S&P 500. Today we look at how well the VIX has been at predicting future volatility.

Study
  • S&P 500 (SPY) and S&P 500 IV (VIX)
  • 2005 to present
  • Computed and compared 30-day moves that were predicted by VIX to actual moves in SPY
  • Compared selling 1 Standard Deviation Strangle (16 deltas on each side) in SPY managing @ 50%
    • Compared at various percentiles
Results
  • VIX is often used to measure future volatility and future movement in the S&P 500.
  • Historically, this measure has not been very accurate at IV lows or highs, usually overstating movement in the market.
  • Selling premium in the S&P 500 via short options has been one way to profit from this disparity.

Market Measures More installments

See All »

Latest tastytrade Videos As of December 13

Most Shared From the last 30 days