Some like it hot…
The Volatility IndexThe Volatility Index, aka VIX, is often used to gauge stock market fear.
The VIX that most market commentators talk about is the one below, i.e. the one based on the S&P 500.
Note that the perceived market wisdom suggests that volatility in the FTSE 100, Dow Jones etc. will be “broadly” inline with the S&P 500 volatility.
Live VIX Volatility Index Chart
Reading the VIXThe VIX can be a useful guide e.g. if the market seems very volatile, and you’re not sure why, you could check the VIX chart to see if it is the wider market being volatile or “just you” (and your bad trade).
Long-Term VIX Chart:Below a long-term view of the VIX
When the VIX Goes WrongAs you can see on the chart above, the VIX was at multi year lows in the months prior to the Financial Crisis of 2007.
Just because the market is calm, that doesn’t mean the market isn’t being stupid.
25 July 2017: VIX at Multi-Year LowsThis VIX is at 9.43, i.e. multi-year lows.
The lowest it’s been since December 2012 when it hit 8.60. The prior low was 9.31 in December 1993.
11 August 2017 “Some” Good News for those Missing VolatilitySo there’s lots of chat about volatility increasing due to North Korea’s continued nuclear provocations and Donald Trump‘s handling of that.
Assuming neither of the idiots presses the wrong button, this is good news for those who like volatility.
The VIX has risen from 9.5 on Tuesday to 16 on Thursday.
It’s nice to see the VIX moving up (anything below 10 is very low).
Having said that, in the grand scheme of things, as the weekly VIX chart below shows, 16 really isn’t that high either.
11 August 2017: Weekly VIX Chart
This suits me, a little more volatility is often welcome for swing trading.
At the same time though, I don’t want much more volatility. I like to plan my spread bets and don’t want to add a “random” factor.
Be careful if volatility is continues to increase. If in doubt:
18 August 2017: Be Careful…The VIX is up but only back to the levels of 2014-2016.
No panic needed but take extra care with your trading.
If volatility gets higher then think about pressing the pause button on your spread betting until the VIX comes back down.
Weekly VIX Chart
Volatility Back to 2014-2016 Levels
Remember: Spread betting, CFDs and forex trading carry a high level of risk. You can lose more than your initial investment. These products are not suitable for all investors. Only speculate with money that you can afford to lose. Make sure you fully understand the risks involved and seek independent financial advice where necessary.