Index price and volatility tend to have an inverse relationship, which means that when index prices decrease, the corresponding implied volatility index tends to increase. This is backed up by our study in SPY, QQQ, DIA, IWM and their corresponding volatility products VIX, VXN, VXD and RVX.
According to our study, when the indices' prices fall by 1%, the corresponding IV indices will increase, but at different scale.
- VIX rises by 9% when SPY fall by 1%,
- VXN rises by 6% when QQQ fall by 1%,
- VXD rises by 7% when DIA fall by 1%,
- RVX rises by 5% when IWM fall by 1%.
Tune in as Tom and Tony discuss using this information when trading.