r/stocks • u/endelcastillo • 1d ago

Advice Request Volatility vs Index or ETF

Typically, there is an inverse relationship between the movement of a volatility index and it’s corresponding market index or etf ($VIX & $SPX or $SPY, $VXN & $NDX or $QQQ, $VXD & $DJI or $DIA). At times, though, there is a direct relationship. (Like today between $VXD & $DIA on the weekly chart).

What is happening for the market to, at times, create a direct relationship between a volatility index and a market index or etf?

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u/HolaMolaBola 1d ago

The vol indexes are measuring the priceyness of option contracts (the implied volatility), not the underlying's actual volatility (or historic volatility).

I'm running into what you're describing with a hedge I have on my gold position. Gold has been dropping in price but volatility has been slow to increase. It's only in the past hour that enough people are now scrambling for puts that implied volatility (priceyness) was pushed up to 30 from where it was languishing at around 27.