Loading ...RARE VIX SIGNAL JUST SOUNDED FOR THE 5TH TIME EVER
VIX premium peaked before the Brexit panic and the U.S. election surprise
The lofty VIX premium indicates short-term S&P options are “overpricing” volatility expectations relative to the volatility the index has actually realized over the last four weeks’ worth of trading. In other words, it’s a measure of how expensive the VIX is based on the SPX’s previous 20 days’ worth of trading. Mathematically, the VIX premium is simply [VIX – 20-day SPX historical volatility (HV)]/20-day HVs, expressed as a percentage. We considered only one signal every 21 trading days.
The last time it crested 200% was on Aug. 9, and prior to that just before the November election surprise. Before that, the VIX premium topped 200% on June 22, 2016, at the start of the Brexit panic. The only other time this signal has flashed since 1990 was in late December 2010. As you can see on the chart below, previous signals have preceded notable VIX drops