VIX1D extreme readings and their relationship to the SPX
VIX1D has a short history since its incieption on April 24-2023, however, its creator, CBOE, has included bactkesting data that allows us to see how VIX1D would have performed on earlier dates.
The VIX1D line chart shows the backtest data provided by CBOE.
We drew a horizontal line at 14.57 which would limit what we can call a subdued volatility (bullish for SPX).
And another line at 40 which would mark the panic selling. Extreme readings that could be that VIX explosion that has not occurred and that the bears have been waiting for to say that the market has bottomed.
It should be remembered that VIX has lost that synchronicity it had with SPX due to the huge volumes of 0dte options. VIX is calculated based on the 30 day options on SPX. Today almost 50% of the daily traded option volume is 0dte options that expire the same day, thus changing the focus of volatility.
Cboe came out with this new volatility index precisely to try to capture the "real" volatility of the market by way of measuring the impact of 0dte trades on volatility.
Please note how the extreme readings coincide with points of major SPX bounces.
There is an extreme reading of 47 in Dec 12 that does not occur at a SPX bottom but near a peak. That volatility spike occurred one day before the December FOMC announcement. Apparently after a good market rally traders ran for cover before the announcement. After the announcement the market plummeted
The VIX1D line chart shows the backtest data provided by CBOE.
We drew a horizontal line at 14.57 which would limit what we can call a subdued volatility (bullish for SPX).
And another line at 40 which would mark the panic selling. Extreme readings that could be that VIX explosion that has not occurred and that the bears have been waiting for to say that the market has bottomed.
It should be remembered that VIX has lost that synchronicity it had with SPX due to the huge volumes of 0dte options. VIX is calculated based on the 30 day options on SPX. Today almost 50% of the daily traded option volume is 0dte options that expire the same day, thus changing the focus of volatility.
Cboe came out with this new volatility index precisely to try to capture the "real" volatility of the market by way of measuring the impact of 0dte trades on volatility.
Please note how the extreme readings coincide with points of major SPX bounces.
There is an extreme reading of 47 in Dec 12 that does not occur at a SPX bottom but near a peak. That volatility spike occurred one day before the December FOMC announcement. Apparently after a good market rally traders ran for cover before the announcement. After the announcement the market plummeted