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Danger lurks under the external calmness of the stock market

The ratio of the VVIX index to the VIX index. Source: Bloomberg

American stock indices hit new record psychological marks: on Thursday Dow Jones Industrial closed above 34,000 points and Nasdaq Composite and Nasdaq 100 – above 14,000 points. S&P 500 exceeded 4,000 points at the beginning of April.

Thanks to these events, the VIX volatility index dropped yesterday to a record low in the last 14 months, but it is too early for stock market bulls to relax, warns strategist Susquehanna Financial (a global private financial company specializing in derivatives trading. In particular, it is a market maker on CBOE – approx.ProFinance.ru) Chris Murphy.

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The expert draws attention to the fact that the own volatility of the VIX index, that is, the VVIX index, continues to grow and yesterday reached a three-week high. As a result of these events, the VVIX to VIX ratio reached record levels since February 2020 (see chart above), when the US stock market began its epic crash.

The relationship’s growth is not over yet, warns Chris Murphy.


“Historically, the peak of this indicator is followed by an increase in market volatility and a decline in the stock market,” the expert concludes.


Last Friday, Bloomberg reported that an unknown trader had bought a bullish spread in VIX options the day before, and the trade would be profitable if the volatility of the S&P 500 rises 1.5 to 2 times by July. The size of this position, according to the agency, was about 200,000 contracts, which was almost equal to the average trading volume of call options on the VIX over the previous twenty days.

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