In a year that had to set an unofficial record for "most instances of dumb financial advice on a business station", this one took the cake, even at the very moment it aired.
Just to refresh, on April 18t, someone gave the Power Lunch crew some study showing how well the Dow does after the VIX breaks below 20. Yes, below.
More head scratching? I really really really don't mean to make Bill Griffeth the target of anything. But he keeps plugging away with VIX nonsense.
He just had some study on showing Dow performance at various time intervals from the moment the VIX broke below 20. All were good, obviously.
Again, this is cause and effect illogic. The market does not rally BECAUSE the VIX goes below some arbitrary number (and 20 is completely arbitrary). A much better way to look at this is that the VIX is imploding BECAUSE the market acts very well.
An additional problem with quoting the Dow with the VIX under 20 is the complete lack of context. How did the Dow do with VIX crossing about 35? How about below 15? How about the VIX way below certain MA lines vs. way above? Or how about the Dow with the VIX at any random number? Markets generally rally.
....Adding that the VIX dipped below 20 in December, and the SPY was 147ish at the time.
SPY closed at 138.48 that day. The VIX went under 20 and stayed there until early June. Call it a hunch, but down 30% six month's out might drag down all those other great results.
To me, the best way to look at options volatility is that it's generally "fair" for it's backdrop. That's not to say it's perfectly efficiently priced, of course it's not. I'm talking concept more than anything else. A high VIX environment is often not so much a prediction of future volatility (although it can be of course) so much as a reflection of volatility already in progress. The further you go out in time, the more likely options are to assume the volatility surge is a blip. But the VIX doesn't reflect that, it looks just 30 days out. And it's just an index. Check out this chart Don Fishback created to measure individual volatility of the SPX components. Up to an utterly ginormous 120.
