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    • The Impact of a VIX of 38% for Investors
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    The Impact of a VIX of 38% for Investors

    Kathleen William Posted on

    The VIX has only traded above this level five times since 1995

    On August 5th, the S&P 500 (SPX) experienced a surprise drop of 3% in a single day. But what was even more remarkable was this The Cboe Volatility Index, or VIX, also known as the “fear index,” closed at a high of 38%. This situation raises questions about how often such events occur and what their historical significance is, especially when compared to the market correction in 2022.

    An analysis of VIX trading above 38

    How rare is VIX at 38%?

    Since 1995, the VIX has only traded above 38% five times. For comparison, even during the market challenges of 2022 – when the S&P 500 fell 18% – the VIX never reached this level.

    VIX > 40%” src=”https://images.contentstack.io/v3/assets/blt40263f25ec36953f/blt73dde8803ef50fb0/6716c08b1c3e1876f4604adc/08_xx_2024_An_Analysis_of_VIX_Trading_Above_38_(1).jpg?format=pjpg&auto=webp &quality=50&width=1000&disable=upscale” height=”car” style=”text-align:center” srcset=”https://images.contentstack.io/v3/assets/blt40263f25ec36953f/blt73dde8803ef50fb0/6716c08b1c3e1876f4604adc/08_xx_2024_An_Analysis_of_VIX_Trading_Above_38_(1).jpg?format=pjpg&auto=webp& quality=50&width=480&disable=upscale 480w, https://images.contentstack.io/ v3/assets/blt40263f25ec36953f/blt73dde8803ef50fb0/6716c08b1c3e1876f4604adc/08_xx_2024_An_Analysis_of_VIX_Trading_Above_38_(1).jpg?format=pjpg&auto=webp&quality=50&width=1 000&disable=upscale 1000w” sizes=”(max-width: 600px) 480px, 1000px” loading=”lazy”/></div> </figure> <p>In principle, a VIX above 38% is very rare and has only occurred in 3.4% of cases since 1995. This unusual rise represents a unique opportunity to sell premium, assuming this high level of volatility continues.</p> <figure style=
    VIX

    For example, the market experienced a significant crash in 2020 that drove the VIX to elevated levels, but these highs did not last for long periods of time. Understanding this pattern is crucial for investors and analysts.

    Duration of high VIX

    An important aspect to consider is how long the market will remain at this elevated level of volatility. Focusing on when the VIX reaches 35%, it is clear that the duration of high volatility has generally shortened over the past 15 years, with the exception of 2020. Once the VIX reaches the 35% level, the median value in subsequent periods tends to be around 35% 32%, significantly higher than the long-term average of around 16%.

    VIX > 35″ src=”https://images.contentstack.io/v3/assets/blt40263f25ec36953f/blt7e1bbcc2964a15f4/6716c0bf9c37a3cd21bb1af5/08_xx_2024_An_Analysis_of_VIX_Trading_Above_38_(3).jpg?format=pjpg&auto=webp& quality=50&width=1000&disable=upscale” height=”car” style=”text-align:center” srcset=”https://images.contentstack.io/v3/assets/blt40263f25ec36953f/blt7e1bbcc2964a15f4/6716c0bf9c37a3cd21bb1af5/08_xx_2024_An_Analysis_of_VIX_Trading_Above_38_(3).jpg?format=pjpg&auto=webp&quality =50&width=480&disable=upscale 480w, https://images.contentstack.io/ v3/assets/blt40263f25ec36953f/blt7e1bbcc2964a15f4/6716c0bf9c37a3cd21bb1af5/08_xx_2024_An_Analysis_of_VIX_Trading_Above_38_(3).jpg?format=pjpg&auto=webp&quality=50&width=10 00&disable=upscale 1000w” sizes=”(max-width: 600px) 480px, 1000px” loading=”lazy”/></div> </figure> <p>This suggests that once triggered, high volatility can be persistent, although the duration may become shorter over time. For investors, this means being cautious and employing strong risk management strategies.</p> <p><strong>Takeaways:</strong></p> <ul> <li>The VIX of 38% is a rare event and has only occurred 3.4% of the time since 1995.</li> <li>The market can maintain high VIX for extended periods, although these periods have declined in recent years, with the exception of 2020.</li> <li>Investors should proceed with caution and employ sound risk management strategies to navigate these turbulent times.</li> </ul> <p><strong>Kai Zeng</strong>, <em>Head of the research team and head of Chinese content at schmackhaftlive, has 20 years of experience in market and derivatives trading. He co-hosts several live shows including </em><em>From theory to practice</em><em> and building blocks. </em>@kai_zeng1 </p> <p><strong>For daily live programs, market news and commentary</strong><em>visit </em><em>deliciouslive</em><em> or the YouTube channels </em><em>deliciouslive</em><em> (for options traders) and </em><em>tastyliveTrending</em><em> for stocks, futures, forex and macro.</em> </p> <p><strong>Trade with a better broker</strong><em>, </em><em>Open a TastyTrade account</em><em> Today. deliciouslive, Inc. and delicioustrade, Inc. are separate but affiliated companies.</em> </p> </div> </div> <span class=

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    Kathleen William
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