What Happens the Week After the VIX Drops 20%?

I had computer issues Sunday night so I couldn't get this out there when I wanted to. The VIX already went up 8.54% Monday, taking some of the punch away from this post. But here it is anyway...

The VIX dropped 26.7% for the week ended 3/25/11. According to my records, the VIX has suffered a 20% weekly drop only 25 other times since 1990. Here is the performance of the VIX one week later, including the highest intra-week gain (MFE) and loss (MAE). The test (theoretically) buys the VIX on the last day of the week (i.e. 3/25/11) and sells five trading days later.

Ticker	Trade	Date	Price	Ex. date	Ex. Price	% chg	MAE	MFE
$VIX	Long	5/4/1990	17.28	5/11/1990	19.81	14.64%	0.00%	14.64%
$VIX	Long	11/16/1990	21.34	11/26/1990	22.76	6.65%	-5.86%	6.65%
$VIX	Long	1/18/1991	25.39	1/25/1991	22.20	-12.56%	-12.56%	0.00%
$VIX	Long	3/15/1991	14.90	3/22/1991	16.49	10.67%	0.00%	13.15%
$VIX	Long	12/16/1994	12.79	12/23/1994	11.82	-7.58%	-7.58%	6.88%
$VIX	Long	3/15/1996	16.54	3/22/1996	17.05	3.08%	-9.43%	17.59%
$VIX	Long	11/21/1997	26.65	12/2/1997	25.66	-3.71%	-3.71%	13.77%
$VIX	Long	1/16/1998	21.65	1/26/1998	23.97	10.72%	-5.08%	12.75%
$VIX	Long	11/20/1998	22.47	11/30/1998	26.01	15.75%	-5.47%	15.75%
$VIX	Long	10/22/1999	21.64	10/29/1999	22.20	2.59%	-4.67%	17.28%
$VIX	Long	3/3/2000	19.21	3/10/2000	21.24	10.57%	-0.10%	31.18%
$VIX	Long	4/20/2000	25.85	4/28/2000	26.20	1.35%	-2.51%	14.12%
$VIX	Long	9/28/2001	31.93	10/5/2001	33.39	4.57%	-5.07%	6.73%
$VIX	Long	5/17/2002	17.70	5/24/2002	18.90	6.78%	0.00%	17.01%
$VIX	Long	3/9/2007	14.09	3/16/2007	16.79	19.16%	-2.98%	50.82%
$VIX	Long	3/23/2007	12.95	3/30/2007	14.64	13.05%	-3.78%	23.94%
$VIX	Long	8/24/2007	20.72	8/31/2007	23.38	12.84%	-1.35%	28.23%
$VIX	Long	9/21/2007	19.00	9/28/2007	18.00	-5.26%	-10.79%	7.68%
$VIX	Long	12/21/2007	18.47	12/31/2007	22.50	21.82%	-1.03%	21.82%
$VIX	Long	10/31/2008	59.89	11/7/2008	56.10	-6.33%	-26.11%	9.95%
$VIX	Long	11/28/2008	55.28	12/5/2008	59.93	8.41%	-8.65%	24.10%
$VIX	Long	11/6/2009	24.19	11/13/2009	23.36	-3.43%	-10.67%	8.19%
$VIX	Long	5/14/2010	31.24	5/21/2010	40.10	28.36%	-10.08%	52.56%
$VIX	Long	5/28/2010	32.07	6/7/2010	36.57	14.03%	-9.20%	14.03%
$VIX	Long	2/4/2011	15.93	2/11/2011	15.69	-1.51%	-6.72%	7.16%

I think you all can see where this is headed: up.

The average move one week after it drops 20% is +6.59%.  The average of the right column is 17.44%. This tells me that before the week ends, there could be a continued spike in volatility, maybe another 8 - 9%.  But even if it does continue to rise, that doesn't means it will end the week positive.  Look at November 1997: it ended the week down 3.12%, but was up 13.77% at one point during that week.

Just some volatility food for thought, even if it's a day late.

Good trading out there.

Sporadic Posts

I haven't posted in a while. There were some compelling studies I did in-house based on last weeks action, but I didn't have the time to put them into a full post. This week's action is a mystery to me; I've been chopped up a bit.

My side job is very busy right now, so I may be sporadic on the posts through April 15.

I'm also very focused on the futures market right now. I am trying to teach myself some E-mini (ES_F) intra-day strategies. I'm looking at the TICK and utilizing market profile charts. There is a lot out there, so I am in full info-absorption mode. It's very consuming and requires at lot of mental energy.

If a compelling study presents itself, I'll be sure to post. But until then, I may be sporadic over the next few weeks.

Good trading out there.