How Significant is the VIX’s 200-Day Moving Average?

I believe VIX charting has some utility, if for no other reason than to visualize deviations from short-term moving averages.

Farther out though? I just don’t see it.

But anytime I chart something, by default I first pop up the 20-day, 50-day and 200-day moving averages (MA). And can’t help but notice the VIX bouncing off the 200-day MA twice in past six weeks, and then hovering in its vicinity in recent days.

Here is the chart:

Options guru Bernie Schaeffer said this in his Options Advisor:

“The 200-day moving average of the CBOE Volatility Index … has been quite significant over the years. This should be somewhat surprising to many students of market technicals, as moving averages are supposed to be a tool for gaining insight into the price movement of instruments such as equities that routinely display ‘price trends,’ whereby price movement in a particular direction begets more price movement in that direction. But volatility is said to be a ‘mean reverting’ instrument, in which case pronounced price movement in a particular direction is most likely to beget movement in the opposite direction.”

Precisely.

So why are we seeing this? Dr. Schaeffer speculates that as the VIX cheapens to the 200-day MA, put buyers, as well as VIX futures and VIX call buyers, emerge.

Maybe, but he also notes there is relatively light futures volume associated with the large premiums, which makes me think there’s something more. Or less. It’s entirely possible we’re mistaking a coincidence here for something more.

The VIX strikes me as pretty fair here given our current backdrop. There are too many risks in the system to justify selling options with a VIX that’s in the teens, and likewise, we just don’t see the ranges to justify a VIX in the 30s either. In fact, 10-day realized volatility sits in the low 20s, so a VIX in the mid-20s has a perfectly routine premium.

As for the 200-day moving average? Well, that too sits right here at 23.38.

I really don’t believe the VIX is stopping here because of any sort of support; rather the 200 day really just sits at a very fair level right now.

The market continues to price in an uptick in volatility for the fall, though to a lesser extent than in recent days. October VIX futures carry a 6.25-point premium as of this writing. That’s still very high, but down 2 points in the past week. The whole “erosion” is thanks to the futures not moving while VIX itself inches higher.

Follow Adam Warner on Twitter @agwarner.

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