Heightened Volatility Creates Opportunities in Path-Dependent ETFs

March 7, 2022

As of March 2, 2022, the CBOE Volatility Index (“VIX”) level was 34. The VIX is quoted as an annualized percentage of the expected price range for the S&P 500 at the confidence interval of one standard deviation (≈68%). It should be noted that the VIX is derived from the 30-day implied volatility on a series of S&P 500 put and call options. It is calculated continuously and can change dramatically at any given moment. The long-term average for the VIX is approximately 19.5.
The VIX at 34 means that market participants generally expect changes to the S&P to fall within +/- 34% on an annualized basis, or +/- 9.8% over the next month. With the S&P at 4,300, the expected range of the S&P is between 2,838 and 5,762 over the next year. At two standard deviations, or about a 95% confidence interval, that range expands to between 1,376 and 7,224. These wide ranges capture the heightened uncertainty of the world.
As observed below, the VIX has only been above the 30 level 8.4% of the time. A VIX above 30 has proved to be a good time to short path-dependent volatility products.

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