We’ve received numerous emails asking about the relationship between the SPX and the. Our traders aren’t looking for a complex formula with intricate calculations. They are looking for more of a “back of the envelope” method and a better understanding of what a percentage move in the SPX will mean for a point move in the VIX. Since we are often short it is obviously something worth knowing. Here is our answer and how we derived it.
The formula we used to compute the ratio between the SPX and the VIX was displayed. We divide the change in the VIX by the S&P percentage return. So if the SPX was down -4% and the VIX return was +5 points over the same period, the ratio would be: 5 / (-4) = -1.25.
A table showed the ratio for SPX movements of +/-0.5%, 1.0%, 2.5% and 5% for 1 day, 3 day, 5 day and 10 day periods. The table showed that regardless of the time frame or percentage change in the SPX the ratio averaged around -1.00. This means that the VIX point change tends to mimic the SPX percent change. A graph of 3-day VIX changes relative to 3-day SPX returns (when greater than 1%) further demonstrated the relationship of a -1.00% return in the SPX leading to a +1 point move in the VIX. Please note, that this ratio is based upon recent data from the SPX and the VIX. This ratio may change over time.
For more on the VIX and SPX see:
Market Measures from September 4, 2015:
Market Measures from March 22, 2016:
Market Measures from June 17, 2016:
Watch this segment of Options Jive withand for the key takeaways and the handy back of the envelope calculation to know how much the VIX will move against a move in the SPX.