S&P 500 Sucker Punched as VIX Jumps 16% From Year?s Lowest Level
The combination ignited yesterday, with the Standard & Poor?s 500 Index falling more than 1 percent as a benchmark gauge for equity turbulence surged the most since January. The Chicago Board Options Exchange Volatility Index jumped 16 percent to 14.06.
Options traders were caught leaning the wrong way as speculation the Federal Reserve will raise interest rates shook investors returning from Memorial Day. For the VIX, it was only the second move of more than 15 percent all year — compared with four in December alone.
?The market was not realizing any significant volatility over the last couple of weeks, particularly to the downside,? said Dan Deming, a managing director at Chicago-based Equity Armor Investments. ?Any type of significant selloff was going to have more of a slingshot effect on the VIX.?
The VIX?s violent reaction may have reflected a repricing in the index after the long weekend, according to Deming. The selloff followed the slowest week this year for domestic equities, which fluctuated in the smallest range in six months over the five days en route to a 0.2 percent gain.
On Thursday, the VIX closed at its lowest level of 2015 as the S&P 500 reached an all-time high. In the five-day period, the VIX?s closing level averaged 12.54, its lowest for a week since one ending Sept. 5.