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A New Divergence in the VIX

The S&P 500 is a hair away from breaking to new highs:


But the VIX is nowhere near the levels that we saw the last time the market was this high:


So is this the "smart money" piling into puts? I'm not so sure.

I don't believe that the VIX is that intelligent of an instrument relative to equity prices. The VIX futures and options market has matured into a very deep market, so I am not sure that VIX pricing is all that enlightened.

But what's more important is that you can't look at the VIX in a vacuum. You must say "relative to what?"

And when we look at the 1 month actual market volatility, this helps to explain why the VIX is elevated:


This can explain away most of the extra value in the VIX. At 1595 last month, the 1 month volatility was trading in the single digits. Because of the recent shake-and-bake in the market, that level is now nearing 15.

What does this all mean? Volatility markets aren't pricing in a "new normal" -- they are pricing in what has recently happened. In fact, I could argue that they are "underpricing" it, which means if you believe in smart VIX money it's actually a bullish signal.



by Steven Place

Steven Place is the founder and head trader at