What to make of the recent volatility in the markets

The VSTOXX index that monitors volatility in European stocks, hit 35 on Monday morning, the highest since the 2012 euro crisis woes.

But it was the recent move in volatility, as measured by the VIX Index, that caught the eye of Goldman Sachs Group Inc (NYSE:GS) analysts.

India VIX is a volatility index based on the Nifty Index Option prices.

When the volatility index did start updating, it quickly shot up to up 25 points to 53.29, the highest since Jan 2009. With Monday’s volatility eclipsing the dramatics of the May 2010 “flash crash”, it’s worth remembering that stocks were weak for months afterward. The higher the volatility, the rockier the passengers’ ride is from point A to point B. It is a powerful tool that through a glimpse can give us an idea of the level of panic in the market.

“If you are of the mindset that the worst is over and that things are going to get better from here, then this is an ideal time to sell options premium”, said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin. The VIX essentially measures how volatile that investors expect the market to be in the next 30 days. The index has pulled back significantly from those levels, closing at 30.32 on Wednesday. Robert Whaley, father of the VIX, says at the “beginning of the week it was about at a level of 12, at the end of the week it was at 28”. But it can be a sign that investors should be braced for wild swings in their account balances going forward. It has also soared above its long-term average of 20.