Volatility: « fear indices » are getting higher

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06/30/2015 | 04:19 pm
Volatility indexes of different stock markets have increased a lot recently. It shows that economic entities are very pessimistic about the economic outlook… The Greek issue is undoubtedly responsible for it.
Volatility is an important part of trading. Thanks to it, people are able to not only evaluate options or derivatives but they can also adapt their trading strategies depending on the level of volatility. Volatility indexes measure the implied volatility for a basket of put and call options related to a specific index or ETF and thus gives us the real feeling of investors.

VIX serves as a reference: it relies on S&P500 options and it is calculated by the Chicago Board Options Exchange. It gives us indications upon American markets’ nervousness. It is often referred as “the fear index”.

Volatility indices are numerous. There are some on stocks (VDAX for the german DAX30, RVX for the Russell 2000…), some for commodities (OVX for Crude oil, GVZ for Gold...) and even interest rates’ indices.
 
“VIX” fluctuation over the past 20 years




 
We can notice that the VIX has been relatively stable for the past 5 years. On Monday, the VIX moved upward, which testified to the fact that the American stock markets are sensitive to the Greek case. Moreover, the index has only crossed 5 times the 40 points line:
  1. 1998 : when the Russian crisis occurred
  2. 2001 : in the aftermaths of 9/11
  3. 2002 : following Enron financial scandal
  4. 2008 : when the worldwide financial crisis occurred (it reached its historical maximum at 80 points)
  5. 2011 : during the financial storm of July, August and September
 
“VXN” fluctuation over the past 2 months 




VXN is the NASDAQ’s volatility index. We notice a recent appreciation of that index that reaches levels that we haven’t seen since February 2015 (currently at 19.81 points)
 

“V2X” fluctuation over the past 2 years




V2X is the EURO STOXX 50’s volatility index. The announcement of the implementation of the European Quantitative easing has brought a 8 points decrease on the V2X. That index has recently taken 14 points because of the Greek turmoil, which seems to affect more the Eurozone countries than others.
 
Théo de Beublain
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