The stock markets are extremely choppy at present. The VIX or the CBOE Volatility Index dipped to scrape 8.84 on July 26. The number is its lowest point in the stock market's history. The VIX, which is utilized to measure concern in Standard & Poor 500, hovered at never before historical bottoms for a number of weeks. Its lowest point happened during the third week of July when it closed at a 24-year low. The market, it seems, has discharged all care in the world. Then suddenly, all things changed. The intraday loss was completely erased as the market charged up, ultimately ending that day's session with an upside of 1.8 percent at 9.6.
Negativity and analysts
Even though doomsayers regard a low VIX as a happening with full negative connotations being seen as a signal of complacency which has made the traders vulnerable to unforeseen shocks, many traders see the events through a more rosy viewpoint. A majority of investors regard the see-saw as a side-effect of conditions which are ideal for the stocks. The latter can then continue to edge higher.
Market analysts have an explanation for the choppy behavior of the markets. The popular opinion is that the lackluster economic growth has stopped Federal Reserve from swiftly tightening the monetary policy. The outcome of this is that investors have not run away from stock markets to put their money in favor of any fixed income. It follows that gains had not ballooned to a point that a corrective phase was required.
Betting on the market
Other than the above explanation, it must be noted that the market in the United States is in the midst of an excellent expansionary period for the corporate profits. The Standard & Poor 500 is anticipated to be about 7.3 percent in the second quarter. This will mark the market's fourth consecutive expansion period. It is not surprising that the Standard & Poor 500 closed at peak highs during the same time as VIX hit 24-year troughs. This is as both the gauges trade inversely when it comes to each other almost 80 percent of the time.
It is not surprising that not every person thinks that volatility will continue to be locked within the trough regime. An unknown trader made a huge bet on July 21 that the VIX will go up. If it does, the trader will win a massive $262 million payout. The said investor implemented bullish call spread strategy involving thousands of such VIX options.