What does a VIX below 11 mean?

It means the expected forward volatility for S&P 500 stocks is 11%. That can be compared to historical volatility and realized volatility as it plays out. The VIX is determined by how put and call options are actually priced. That is, how much volatility is priced into them. It is volatility as implied by the options price.

It means that the stock market is expected to be calm. An upward trending and calm stock market is a good thing, if it will stay that way. The stock market regime has faded from an extreme range of prices during the 2008 to 2009 period and has gotten calmer and calmer as prices have trended up. After prices trend up, investors become more comfortable and less indecisive as I pointed out in Declining (Low) Volatility = Rising (High) Complacency.

When the VIX is at such a historically low level, it may be a good time to consider options instead of the underlying. And, it may be a good time to use options to hedge.

 

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