Lower, Not Low: An Examination of Recent Volatility Trends

Highlights

• Apart from the spike associated with the banking crisis in March, volatility has been on a slow but steady decline so far in 2023.
• Even so, the year-to-date average level of the Cboe^® Volatility Index (the VIX^® ) through April 30 is 20.03 – above its long-term average of 19.67.
• While some commentators may point to the VIX® decline as an “all clear” signal for investors, a closer examination reveals slightly more complexity.
• Both implied and realized volatility have slightly declined this year, but the spread between the two measures, known as the Volatility Risk Premium (VRP) has been on an uptrend.
• This trend may benefit strategies that sell index-based call options, such as those offered by Gateway.