The SPX/VIX inverse relationship

I’ve commented before on the nearly perfect inverse relationship between the S&P 500 and the VIX. When the SPX goes up the VIX goes down, and vice-versa.

A few people have written to say that actually it’s not all that uncommon for both the SPX and VIX to close up for the day, or for both to close down for the day.

Well, we’re both right. It turns out a lot depends on your time frame.

Below is a chart of the SPX and VIX, with each bar representing one minute. This is how I like to look at it. The almost-perfect inverse relationship is unmistakable.


Figure 1

And yet, look closer and you’ll see that on 9-3 both the SPX and the VIX closed DOWN for the day! I could say “As always, the inverse SPX/VIX relationship held almost to perfection.” And you could say “No, they both closed down.” And we’d both be right.

Far more interesting is when once in a blue moon – actually, far more rarely – you have a day such as last Wednesday July 15 (Figure 2 below). Not only was the SPX/VIX close-to-close relationship positive (they both closed up), but much more importantly, that correlation was just plain positive the whole day:

Figure 2

Figure 2

I wasn’t the only one struck by the SPX/VIX action that day – Bill Luby of wrote:

“The intraday tick for tick positive correlation between the VIX and the SPX was as strong as I have ever seen. Most of the time the VIX and the SPX move in opposite directions. Today it was almost as if someone has inverted the gravitational forces acting upon these two indices.”

What does it mean? In response to a comment, I wrote the following on July 16:

“So my best guess is that yesterday’s VIX anomaly represents skepticism that the stock market rise is for real, which is quite bullish.”

In other words, my take on it is that that day the SPX rose steadily to close almost 27 points higher. But the more it rose, the more SPX option traders refused to believe the rise could last, so the more they bought portfolio insurance in the form of SPX options, driving the VIX higher.

Rising bearishness in the face of rising prices is of course strongly bullish. And indeed, in the 7 trading days from July 15 to July 24, the S&P 500 cash index rose from 932 to 979.

Days such as July 15 – as charted in Figure 2 – occur so rarely they’re hard to study. But when you see the normal minute-by-minute inverse SPX/VIX relationship broken for an entire day, it seems clear to me that the market doesn’t buy that day’s trend. Meaning there’s a high probability it will continue for the immediate future.

13 Responses to “The SPX/VIX inverse relationship”

  1. Thanks for the chart,it made it easier for me to understand….

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  4. jalexander says:

    The VIX/SPX relationship and the VIX, itself, over twenty years, are pictured in two intriguing graphs.

  5. Dick Friota says:

    What do you think the best online brokerage is?

  6. J.P. says:

    Joe Kinahan comments on the rising VIX and rising SPX. He seems to agree that bearish sentiment is rising, but sees a short-term 10-15% pullback coming. He also agrees with your contrarian stance that usually the market tends to go higher when everyone is “preparing” for the downside. The “VIX spells Doom” seems to be a little sensational.

  7. Ming says:

    One odd thing I noticed that day is that CBOE Index Put/Call ratio was close to 1.0 (very bullish sentiment), while ISEE Index Call/Put ratio was close to 66 (tepid reaction). As ISEE numbers indicate only newly initiated positions, I guess the call volume tracked by CBOE might include lots of rewinding existing (short) positions.

    If lots of people established bearish positions through writing calls in prior weeks (betting on the breakdown of Head&Shoulder pattern), the sudden rise of S&P500 in OE week, especially when it broke above 925 level, might force them to buy back sold calls.

    Theoretically, do you think higher call buying price could push up VIX as well instead of conventional put buying? Thanks.

    • Dean says:

      There is a relationship between the implied volatilities of all options on any given underlying. If the put IV is bid up, then spreaders will bid call IV up too and vice versa. So the question is, which is really driving the VIX – puts or calls?

      I believe the answer clearly is that put buying and selling is a far more significant driver of the VIX than calls. There are incomparably more people net long stocks than there are people net short stocks, so virtually all the hedging action is in the puts. And as we all know, the hedgers are the “strong hands,” and not the speculators.

  8. Jason says:

    i remember a book i read many years ago talking about predicting vix using a very simple method(moving average?) and from the test i’ve done it is very accurate no wonder the guy said he was trying to find a counter party to take his vix bet but no one would do that. but it didn’t work on the vix future contract don’t know why. cheers

    • Jacintha says:

      Hi Jason,

      Im a Master in Finance student from the Netherlands, and Im currently writing my master thesis on VIX. Do you have a clue which book you were talking about? Im trying to find out more about predicting the VIX..Many thx in advance.


  9. Candy Chiu says:

    Dean, would you explain why “Rising bearishness in the face of rising prices is of course strongly bullish”? Doesn’t the market participants’ disbelief in current trend renders the trend more susceptible to a turn? Thanks.

    • Dean says:

      No Candy, although it may seen counterintuitive. a very high level of bullishness is actually bearish and vice-versa. Have you ever heard the expression “The stock market climbs a wall of worry?”

      You need to read up on being a contrarian and contrarian investing. Try googling those terms, as well as “contrarianism.”

      Any investor who doesn’t master the truth of contrarianism is cannon fodder – please take my word for it that this is crucially important. If you’d like the name of a good author on the subject, everything Robert Prechter has written is golden. There’s a book called “Prechter’s Perspective” that is worthwhile reading for anyone interested in trading and investing.

      • vJD says:


        Could you perhaps provide us with more material on that?

        Especially the part of predicting stock direction by monitoring the VIX.

        Pehaps even a video on that…?!? Would appreciate that!!!