The VIX Becomes Worthless, Again (VXX, VXZ)

By Douglas A. McIntyre Updated Mar 26, 4:10PM EDT · Published Jan 8, 3:43PM EST

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The CBOE Volatility Index or “The VIX” has turned worthless as a market indicator. This happens from time to time, and it is often followed by rapid change. Today the VIX hit a 52-week low of 18.70 and it sits at 19.06 late in the day. What is interesting is that this was not just a 52-week low in the volatility. The last time the VIX was this low was August-2008, right before the everyone thought the next wave of the financial markets was upon us. The iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) and the iPath S&P 500 VIX Mid-Term Futures ETN (NYSE: VXZ) are the two ETF/ETN products which trade around the VIX.

The higher the VIX, the higher the volatility. I noted that the VIX had started turning worthless back on October 19 when the VIX was hitting steadily in the low 20’s…. It then rose rapidly to over 30 by the end of the month, which corresponded with a 4% drop in the DJIA and a 5% drop in the S&P500 during the same period. In that article then we gave more explanation because the rally was still fresh, but now it isn’t.

It is impossible to know if the same will happen this time with a rapid change or not. The VIX can go through extended periods of being dormant. But one thing is true when the VIX gets this low and after you have seen such a strong rise in the stock markets… buying Puts for downside protection to assure gains stay locked-in is generally cheaper than ever.

The iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) is down 2% at $29.71 and the iPath S&P 500 VIX Mid-Term Futures ETN (NYSE: VXZ) is down 0.4% at $72.20.

JON C. OGG

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.