What does a VIX $25 reading tell us about the current market conditions?
First, since the VIX is a reflection of investor sentiment, we can see that the anxiety of the February-March 2020 decline has retreated and overall investors are positive on the market. However, the VIX spent the majority of the past 2 years in a range of $11-$15, so with a reading of $25 we can presume investors still anticipate much more future volatility than they did over the past 24 months.
Second, with the recent market decline fresh in our minds, investors could rush to hedge (buy puts) with any signs of market weakness. Given the explosive nature of the VIX, it would not be a surprise to see the VIX run above $40 even on a minor market pullback.
Finally, the VIX could remain elevated because of Covid-19 economic impacts and the upcoming U.S. elections. A $20-$25 range could be the intermediate floor until the election results are known.
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards”
― Peter Lynch,