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A History Lesson in the VIX and Volatility

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Happy Martin Luther King Jr. Day! It’s an important time to remember one of our nation’s great American heros, what he advocated for, and his accomplishments.

In an unrelated note, this three day weekend is a painful reminder in the investment space… after a huge volatility spike… which was what some say was the beginnings of what later became the financial crisis if 2008-2009 {Past performance is not necessarily indicative of future results}. Last year, we covered this five year anniversary, and we feel it’s important to revisit each year. Here’s “A Different Kind of History Lesson (The VIX).”


Now, we all think back on 2008 and the huge volatility surrounding the financial crisis and Lehman bankruptcy and what not that fall (Aug. through Nov.)… but the first big warning shot across the bow was actually on MLK weekend (Jan 20th, 2008). The calls and emails started coming in on Sunday night – as the US stock index futures started opening up 4% to 5% lower based on Asian markets having sold off around 5%. A little trip in the wayback machine brings us this from Barry Ritholtz’s early blogging efforts:



Source: Ascendant Options
(Disclaimer: Past performance is not necessarily indicative of future results)

So here we are 6 years later (has it really been 6 years!! wow, time flies), and the complacency in the market is starting to look a lot like it did back then – with option selling managers again leading the top performing lists and seemingly unable to do any wrong. Will this down trend in volatility, and particularly the VIX – continue? Or are we likely to start getting texts and emails and Ritholtz “look out below” warnings one Sunday night soon. If you’re a betting man or woman – well there’s an investment for you to place just that bet on whether a spike is coming – they are option selling managers, and they’ve been right a lot more than they’ve been wrong over the past two years… but can it continue. Stay tuned…


(Disclaimer: Past performance is not necessarily indicative of future results)

For those of you not technically in the alternatives world via managed accounts, but instead doing more staid investments (heavy sarcasm) in things like the inverse volatility ETN – XIV, your equity curve is starting to look a whole lot like the fattened up turkey before his fateful day. Although – maybe it will add another 337% over the next two years, and the two after that, and so on. It only takes 10 years at that rate to turn $10,000 into $16 million – or $1 million into $16 Billion. Of course – the market could see some volatility like it did six years ago, or even like it did in 2011 – where your $10k could be worth $1,600, or even $160.

New Picture (1)(Disclaimer: Past performance is not necessarily indicative of future results)


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