This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

VIX: Cheap or Expensive?

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews


Every time the CBOE Volatility Index (VIX) makes mainstream news headlines, we get questions from readers and clients about whether a given VIX level means it is or isn't a good time to sell option premium, trade iron condors, etc. The answer is always: no.

The nominal level of VIX is, by itself, meaningless. VIX, or any other estimate of option implied volatility, only means something in the context of realized market volatility. A VIX above 30 might well be cheap if the market is expected to move at a 45% annualized rate of realized volatility, while a VIX below 10 could be extremely expensive if the S&P 500 is moving at a volatility of 4%.

A lot of the positions we trade are typically held for 30-90 days, while the VIX cycles that most people watch last many, many years. Remember that implied volatility can remain low for as long as the market can remain quiet. Given that bull markets and economic upswings last on the order of years (or even decades), not weeks or months, even if you correctly call the exact cyclical VIX bottom, that won't be relevant to a short-term trade.

Analysis should match the trade: option traders shouldn't be paying too much attention to the spot VIX, anyway. The shape and level of the VIX futures term structure is often more informative. When we monitor overall market health, we also look at the state of SPX implied volatility skew and the relative ranks of major asset volatility risk premium. Those metrics are far more informative about likely short-term movements in the market. VIX-watching is a fun hobby, but using VIX to time entries for advanced option spreads is kind of like using a magnifying glass to make astronomical observations.

OptionsProfits can be followed on Twitter at

Jared can be followed on Twitter at

EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
Top Rated Stocks Top Rated Funds Top Rated ETFs