With the equity market surging last week, seeing VIX close little-changed versus the prior Friday may have been confusing for some investors. But keep in mind that VIX is a measure of volatility, not just an inverse market index. In other words, it’s not just crashing down that sends the VIX higher but also crashing up. Generally, the realized volatility of the market and its level are inversely correlated in the short-term, so that big declines drive the VIX higher while grinding rallies send it plunging. But last week the S&P 500 moved at least 2.9% on four of five days…even though it gained over 10% on the week. That still-high realized volatility is why options markets that the VIX measures are still pricing high implied volatility. To illustrate this relationship, the chart below shows the average absolute percent change move (so big up and down days are counted the same) on a rolling two-week basis versus the VIX. Through Friday, the level of realized volatility (absolute changes in the market) and implied volatility (the VIX) were pretty consistent. Start a two-week free trial to Bespoke Premium to see our list of “Stocks for the COVID Economy.”

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