How Volatility Index (VIX) Moves with the Stock Market (Illustrated by Examples)

Occasionally, an unforeseen debacle might arouse the swell in VIX reading as well.  For example, many investors and traders around the world still remember the outrageous flash crash which occurred on 5/6/2010. This created a broad and inverse impression of the stock market.  The following chart details the development of the VIX vs. the S&P 500 Index in May 2010.

 

 

As a matter of fact, the market started its correction from 4/26/2010 amidst the Sovereign debt concern.  However, the “fat-finger” incident just amplified the market moving magnitude.  Even if the market recouped most of its losses at the end of day, the S&P index dipped to an intraday low of 1,065 and managed to close at 1,128.  The S&P 500 index dropped 106 points in total from 4/26/2010 to 5/7/2010.  Within the next three days, the S&P 500 snapped up half of the loss.  Then the market resumed the downtrend after that. 

On 5/25/2010, the market broke its intraday low on 5/6/2010 and reached the low of 1,040.  On 5/27/2010, the VIX had a bigger hike than that of flash crash day. Since the Euro dropped significantly and entered the dangerous zone, the S&P lost 43 points that day.

If you want to find out more about the VIX, you can read the following articles:

http://top5indicators.blogspot.com/2013/09/how-to-utilize-volatility-index-in.html

http://top5indicators.blogspot.com/2013/09/how-to-profit-from-trading-volatility.html

http://top5indicators.blogspot.com/2013/09/how-to-identify-ranging-trending-and.html

http://top5indicators.blogspot.com/2013/09/how-to-interpret-volatility-index.html

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