What Is A Normal VIX Level?
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This video should help you navigate this very important index a lot better in terms of the actual levels that really matter.
We have a very interesting question from Marlo about the VIX, after spending so much time on the index lately and talking about some of the key levels it’s been trading around Marlo asks whether a VIX above or below 30 is deemed as significant, so essentially in a nutshell asking what is a normal VIX?
This is a really fantastic question Marlo and this video should help you navigate this very important index a lot better in terms of the actual levels that really matter. So, I didn’t want to just give you random numbers, I extracted the actual open, high, low and closing prices for the VIX dating back all the way to 1992.
Now there is something to keep in mind about the data, the CBOE who are the creators of the VIX made a methodology change in the way they calculate the VIX, which means that all the VIX data before 2003 is called actually called the VXO while all the data after 2003 is what we call the VIX.
I actually made all of the calculation with and without the VXO data and you’ll see from the numbers that the difference was really negligible in the bigger scheme of things.
For interest sake, the first thing I wanted to show you is a graph of the historical closing prices of the VIX going back to 1992, and alongside that I measured the daily range or variance by simply subtracting the high from the low, and on this graph, you can see the closing prices in the blue and you can see the daily range or variance in red.
Now, in attempting to answer a question like yours there is a couple of challenges that we run into because there are various ways that you can measure “the normal” of something, apart from the usually “average” of a data set, it’s best to look at things like these through the lens of the mean the mode and the median of a data set to get a better understanding of what normal is.
Now, keep in mind that I have split the data into three different sections, a total range stretching from 1992 to 2021, then a second set that takes the data from 2003 when the methodology changed until present, I did that in case the methodology change had a huge impact then of course we want to be able to see what it would be without the VXO data, and then we have a third set ranging from the global financial crisis.
The reason for differentiating that third set is just to give us peace of mind that we are comparing apples to apples. The size of the spikes in volatility during the GFC and the Pandemic was so huge that we would expect the overall volatility numbers to be higher during these two periods, which should of course give us a more accurate normal to compare to.
(Watch the video for the full explanation)
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
Why Professional Traders Use A Forex News Feed To Trade - https://youtu.be/orgG56L5H7M
Always stay on the right side of the market and know what to trade every day. Sign up for a free trial:
https://financialsource.co
-----------------------------
This video should help you navigate this very important index a lot better in terms of the actual levels that really matter.
We have a very interesting question from Marlo about the VIX, after spending so much time on the index lately and talking about some of the key levels it’s been trading around Marlo asks whether a VIX above or below 30 is deemed as significant, so essentially in a nutshell asking what is a normal VIX?
This is a really fantastic question Marlo and this video should help you navigate this very important index a lot better in terms of the actual levels that really matter. So, I didn’t want to just give you random numbers, I extracted the actual open, high, low and closing prices for the VIX dating back all the way to 1992.
Now there is something to keep in mind about the data, the CBOE who are the creators of the VIX made a methodology change in the way they calculate the VIX, which means that all the VIX data before 2003 is called actually called the VXO while all the data after 2003 is what we call the VIX.
I actually made all of the calculation with and without the VXO data and you’ll see from the numbers that the difference was really negligible in the bigger scheme of things.
For interest sake, the first thing I wanted to show you is a graph of the historical closing prices of the VIX going back to 1992, and alongside that I measured the daily range or variance by simply subtracting the high from the low, and on this graph, you can see the closing prices in the blue and you can see the daily range or variance in red.
Now, in attempting to answer a question like yours there is a couple of challenges that we run into because there are various ways that you can measure “the normal” of something, apart from the usually “average” of a data set, it’s best to look at things like these through the lens of the mean the mode and the median of a data set to get a better understanding of what normal is.
Now, keep in mind that I have split the data into three different sections, a total range stretching from 1992 to 2021, then a second set that takes the data from 2003 when the methodology changed until present, I did that in case the methodology change had a huge impact then of course we want to be able to see what it would be without the VXO data, and then we have a third set ranging from the global financial crisis.
The reason for differentiating that third set is just to give us peace of mind that we are comparing apples to apples. The size of the spikes in volatility during the GFC and the Pandemic was so huge that we would expect the overall volatility numbers to be higher during these two periods, which should of course give us a more accurate normal to compare to.
(Watch the video for the full explanation)
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
