What the Volatility Index Is Indicating for S&P 500 Index



Market volatility

The CBOE Volatility Index, which measures volatility in the S&P 500 Index, has remained flat in September 2017. Volatility has been playing an important role in markets so far this year.

Since the start of 2017, market volatility has remained at lower levels. The VIX Index touched a historic lower level of $9.36 on July 21, 2017. The volatility index generally moves in the opposite direction as market movement (SPY) (QQQ).

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In the first half of 2017, the VIX Index fell nearly 13.2%. The S&P 500 Index (IWM) rose nearly 7.6% during that period. On a month-to-date basis, the volatility index remained flat as of September 27, 2017. However, the volatility index spiked on some specific days in September 2017 and again it fell the very next day. The S&P 500 Index rose nearly 1.2% on a month-to-date basis.

Fund managers’ view

Recently, billionaire investor and bond guru Jeffrey Gundlach said in an interview with CNBC that he took a long position in the VIX Index. He is expecting that the S&P 500 Index could fall 3% by the end of 2017. So taking a long position in the VIX Index could provide a good return in the second half of 2017.

Bill Ackman also recently said in an interview with CNBC that he is buying out of the money call option in the Volatility Index to protect his investment from a potential market drop due to rising geopolitical risk.

In the next part of this series, we’ll analyze the performance of the Dollar Index.


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