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Volatility at Highest Level in 13 Months

The CBOE Volatility Index, or VIX , reached a thirteen-month high on Friday's trading session. The index, which shows the markets' expectation for volatility in the next 30 days, is up about 70 percent this week alone, hitting an intraday high of 42.15 in today's session.

Also called the "Investor Fear Gauge", the index serves as a barometer of market sentiment. While the current level is still significantly below the 90-mark reached on October 2008, amid the height of the financial crisis, the sharp moves recently seen are certainly sending a message about the current economic climate.

Indeed, a value above 30 typically indicates a period of high volatility and investor uncertainty, while a value less than 20 suggests a more calm period ahead.

VIX Top 10 Biggest Daily Percent Increases

Rank
Date
Intraday High
Close
Daily Pt. Move
Daily % Move
1 10/19/1987 152.48 150.19 113.82 312.95
2 10/13/1989 30.85 28.24 11.46 68.30
3 2/27/2007 19.01 18.31 7.16 64.22
4 11/15/1991 21.18 21.18 7.22 51.72
5 7/23/1990 23.68 23.68 8.05 51.50
6 1/8/1988 50.41 49.36 15 43.66
7 2/4/1994 15.63 15.25 4.5 41.86
8 8/3/1990 28.74 28.74 8.31 40.68
9 10/22/1987 116.04 102.22 28.31 38.30
10 9/29/2008 48.4 46.72 11.98 34.48
13 5/6/2010 40.71 32.8 7.89 31.67

The table below shows the top ten daily percent increases in the VIX. Note that Thursday's gain ranks thirteenth.

>> US Indices Plunge Over 5% for the Week

Note: The VIX, as it's calculated today, was introduced in 1993. Historical data prior to that is calculated based on OEX (S&P 100) options dating back to 1986.

The inverse relationship between the S&P 500 and the VIX in the past two years is also noteworthy. As depicted on the chart below, the VIX tends to rise as the equity markets decline, and vice-versa.

S&P 500 vs. VIX (2-Year Period)

The last five times the VIX crossed and closed above 40, the S&P 500 fell four out of five times with an average drop of 7.2% in the month that followed.


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