• VIX Drops Slightly Amid Ongoing Volatility Trends in US Stock Market

  • Jan 6 2025
  • Length: 3 mins
  • Podcast

VIX Drops Slightly Amid Ongoing Volatility Trends in US Stock Market

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  • Summary

  • As of January 6, 2025, the Cboe Volatility Index (VIX) is currently positioned at 17.35, marking a slight decrease from the previous market day's level of 17.40, a modest change of -0.29%. This minor fluctuation occurs against a backdrop of a notable upward trend over the past year, during which the VIX has risen by 39.36% from a level of 12.45.

    The VIX, often termed as the "fear index," serves as a barometer for the implied expected volatility of the US stock market over the forthcoming 30 days. It derives its calculations from futures contracts on the S&P 500 index. A year-long increase in the index underscores a sentiment of heightened market uncertainty despite a marketplace that seems relatively calm on the surface.

    Various factors have contributed to the current VIX levels. Notably, there has been a shift in trading behavior towards short-term options on the S&P 500. The growing interest in zero days to expiry (0DTE) options has diverted trading attention away from the one-month-to-expiry (1MTE) options, which form the basis for the VIX calculation. This change in trading focus has the potential to lower the VIX, even amidst existing market uncertainties.

    Parallelly, the development and uptake of yield-enhancing structured products tied to the S&P 500 have influenced VIX dynamics. Over the past two years, these products have risen in popularity, creating market scenarios where dealers may act in a contrary manner, tending to dampen price fluctuations. This activity can reduce the costs linked to ensuring against volatility, an effect mirrored in the option prices and resulting in subdued VIX levels.

    The VIX typically rises during market downturns and declines during phases of market stability or economic growth. Despite ongoing geopolitical tensions and uncertainty surrounding interest rate trajectories, the index has lingered below its long-term average of approximately 20 for a large part of 2023. This suggests that overall market volatility expectations have remained relatively controlled, conveying a perception of steadiness within the markets.

    In conclusion, the current level of the VIX at 17.35, albeit experiencing a slight daily decrease, highlights a significant rise over the past year due to evolving trading practices and the influence of structured financial products. These elements, amidst a backdrop of persistent macroeconomic challenges, have combined to sustain a sense of tempered volatility expectations in the financial markets. Despite existing global
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