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Today was by far the largest increase (64.22%) in the VIX since 1990, the furthest Bloomberg lets us download prices. Earlier in the day we noted the breakout of the 10 to 12.5 range. See the chart below for where the volatility index closed (18.31).
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If you look at the chart, it looks like the VIX is susceptible to sharp upmoves after periods of quiet/consolidation. In contrast, there are no equally sharp downmoves in the VIX from periods of stability. This makes sense when we think about risk in society in general. In our day to day lives, when things are just humming along, we are prone to sudden risk 'scares', but not the converse.
I wonder if the assymmetric profile is accurately reflected in VIX options pricing? I'm sure it would be, but if not, then the insurance may be being routinely underpriced.
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Posted by: Samuel | February 28, 2007 at 10:26 AM
Short volatility strateegies must have been killed yesterday. I'll be interested to see February's numbers for LJM Partners and similar funds.
Posted by: Eric Winchell | February 28, 2007 at 12:52 PM