A look at the stock market’s so-called fear gauge shows investor anxiety is on the rise.
The Chicago Board Options Exchange’s Volatility Index moved to its highest level intraday in a month Friday after a dismal jobs report rekindled questions about the pace of the U.S. economic recovery. The VIX jumped as much as 13% to 15.65 before paring the rise later in the day.
“There was a buildup in volatility into the jobs announcement and now going into the weekend, it isn’t up as much as it could be,” said Mark Sebastian, chief operating officer at consulting firm OptionPit in Chicago. “The VIX has sold off partially because stocks have recovered a bit and because uncertainty is gone now that the number is out.”
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The VIX was recently up 0.85 points, or 6.1%, to 14.74. That move came as the Standard & Poor’s 500-stock index slid 15 points, or 0.9%, to 1545. The index was down as much as 1.3% earlier in the day.
One aspect of rising volatility is evident in the seesaw action in recent weeks. The VIX and the benchmark stock index have alternated up and down days for the past 12 sessions–their longest such stretch ever.
Over that time, stock moves have gotten bigger. So far this year, the S&P 500 has averaged daily stock swings of 0.49, but over the past three weeks, the average has been 0.57%. This week, it looks set to rise to 0.64%.
The VIX is a calculation of investor expectations for future stock swings based on S&P 500 options prices. A VIX of 15 implies daily stock moves of about 0.95%. With the S&P 500 just off its record high, a 15 VIX implies far larger daily point moves than a 15 VIX would have a year ago.
At current levels, a 0.95% move would be about 14.60 points. A year ago, when the S&P 500 stood at about 1400, a 0.95% move would have been about 13.25 points. Friday’s rise pushed the VIX further above its year-to-date average of 13.62, which is on track to be the lowest since 2006, before the U.S. financial crisis rocked markets.
The VIX futures curve remained relatively steep, with investors pricing in a 20% rise in the index through mid-July, with the July futures contract trading at 17.40 Friday. Front-month April contracts stood at 14.80. Those contracts expire on April 17.
“Skew is higher than it would normally be with volatility levels this low,” said Frances Hudson, global thematic strategist at Standard Life in Edinburgh, which manages about $273 billion in assets. “That suggests the market is becoming more stretched and more vulnerable to a more extreme move.”
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