VIX Isn’t The Only Way To Measure Volatility

| February 27, 2015 | 0 Comments

implied volatilityVIX Isn’t The Only Way To Measure Volatility

Volatility is one of my favorite subjects to write about.  Regular readers know I like to talk a lot about the VIX and option volatility.  As an options trader, you can’t understate the importance of volatility.

Of course, overall market volatility is most commonly followed by watching the VIX.

As a reminder, the VIX (S&P 500 Volatility Index) is a measure of implied volatility levels on S&P 500 options.  In terms of getting a snapshot of what volatility is up to (and how concerned investors are), you can’t do much better than glancing at VIX levels.

For a more detailed description of VIX, you can check out the CBOE’s main VIX page here.

However, the VIX isn’t the only way to measure volatility.

VIX is popular because it measures the volatility of the most widely followed stock benchmark in the world, the S&P 500. It’s also been around longer than any other volatility index (although it originally measured the volatility of the S&P 100).

Nevertheless, volatility exists in all asset classes and investment types.  A single equity may have volatility very different than a stock index.  Gold, oil, and other commodities all have their own volatility levels.  Even bonds have volatility that can fluctuate as much as a stock index.

In several cases, the CBOE has structured investments around several important volatility measurements.  Besides the VIX, there’s a volatility index for most major stock indices, several major commodities and currencies, and there’s one for Treasury bonds.

I wrote about the 10-year US Treasury Note Volatility Index (VXTYN) back when it was first launched.  You can read the article here.

Given how much the market is focused on interest rates these days, VXTYN has become a very important index to follow.  You see, interest rate predictions will be seen in the bond market before anywhere else.

Typically, Treasury bonds will react to economic news before equities follow suit.  As such, bond volatility can be quite high during certain periods… even if stock volatility remains low.

In fact, if bond volatility climbs while the VIX is stagnant, it could be a sign of major shift of interest rate expectations.  That will certainly impact the equity markets at some point as well.

Check out this VIX chart:

VIX has come down recently, a chart of VIX

As you can see, the VIX has finally dropped to near-typical bull market levels.  I still believe the level will remain elevated compared to what we’re used to. However, equity investors are certainly less concerned about a selloff at the moment.

However, in the meantime, bond volatility (as measured by VXTYN) has climbed from a low of around 4.25 last summer to around 7.  That may not seem like a high level, but it’s about a 50% increase.  Keep in mind, bonds aren’t as volatile as stocks under normal circumstances.

So, what’s it all mean?

It’s a bit early to make any sweeping conclusions from this action.  However, the rise in bond volatility may be a sign that not all is quite as calm as it appears (using the VIX as a guide).

It could be a signal that the bond market believes an interest rate rise is coming sooner than originally expected.  That will likely have a major impact on equities as well, in due time.

I wouldn’t jump to conclusions just yet, but it certainly pays to keep an eye on these metrics.  And remember, the VIX isn’t the only way to measure volatility.

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Options Volatility Watch

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Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.