During large down moves in the market, implied volatility rises, but which end of the volatility curve is most sensitive to these movements? Tom and Tony explore the more sensitive side of volatility in today’s Options Jive!
Short-termtends to expand and contract more rapidly than longer-term IV. Long-term IV is less reactive to the market and remains at a higher level in normal market conditions. How much more is short-term IV affected than long-term IV?
During the 2016 Presidential Election, the short-term volatility index (VXST – 2 week volatility) jumped 129% going from 13 to 29, while the long-term volatility index (VXMT – 6 month volatility) only increased 17% going from 18 to 21. Shorter-term IV also had the highest intraday range and the potential to expand the most rapidly. Longer-term IV is a much less volatile volatility.
Tune in to see Tom and Tony break down the volatility curve!