Why has the VIX been so low even when markets sell off?
When the CBOE Volatility Index surged from 14 to 17 within the span of just two sessions recently, TV anchors were saying that their top story was the jump in the so-called fear index from nearly five-year lows. But the VIX remained well below its long-term average around 20 and even its 200-day moving average at 18.55.
All of this begs an obvious question: Given all the turmoil in the world and on the horizon, why has the VIX been so low? And was that 48-hour move too much or not enough?
Let’s start with the basics. The VIX is not a “fear index,” though it does, sometimes, correlate with fear. It is a volatility index, and it always correlates with the actual volatility in the market.
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