Has the VIX lost its use as a fear gauge?
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VIX as fear gauge
There have been a series of recent articles highlighting the subdued level of the VIX Index and the seasonal tendency for equity volatility to spike this time of year (see this Barron’s article as an example). Other analysts have speculated that the VIX Index is failing as a fear gauge.
Indeed, the current explosion in 0DTE trading, or options that expire the same day, makes a 1-month implied volatility have less utility as a sentiment indicator. Arguably, VXST, or the 9-day VIX, is more useful to measure short-term sentiment. The accompanying chart shows that VXST was faster to spike in the current instance than VIX. The term structure of the VIX-VXST curve shows an inversion, which is an indication of fear appearing in the market.
Source: http://humblestudentofthemarkets.blogspot.com/2023/09/has-vix-lost-its-use-as-fear-gauge.html
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