In the previous weeks that transpired, there had been plenty of speculation regarding the small Intraday ranges in the S&P 500 e-mini futures contract. Indeed, the volatility in the stock index futures has been suppressed recently primarily because of the three major averages that continued to achieve their all-time high.

The upward trending market restrains volatility as markets tend to sluggishly move to the upside than it will go the other way around. Studies reveal that the stock market falls at least three times faster than in generally rises. The main reason for this is due to the fast pace the stock market falls with fear becoming a much more powerful emotion than greed. Secondly, the bulk of the participants in the stock market basically owns more shares as there are fewer buyers left to jack-up the prices when the selling commences.

Traders are utilising several indicators to assess volatility. The most popularly used is the CBOE volatility index or the VIX. Some traders even referred to such tool as the “fear gauge” as it can be a good measure of how investors can speculate the existing risks which basically falls as being an insurance policy for many investors reluctant regarding their positions.

As the market continues to fall, the demand for puts significantly increases which pushes the VIX higher. In the past, the levels below 15 in the VIX have reportedly indicated a general sense of complacency since the premiums are relatively very low implying that investors do not feel the need to pay additional insurance. The flip side tells a very different kind of story wherein the readings that were over 40 historically came after the surge of selling and when fear is rampant, there was the demand for more put options that increased.

One of the most common misconceptions of the VIX index is that a low reading on the aforementioned index implies that the market is already due for a substantial self. Conversely, so many traders have already made up their minds to think that a VIX above 40 signifies that the bottom is very close. The simple truth remains, that there were many instances that the VIX spent many months in the stumpy double digits while the market continued on its upward trajectory which was the case in the last five years until present.

In the peak of the financial crisis, where we are at the precipice of a financial meltdown and the S&P was down well over 40 %, all the past high readings in the VIX were hit hard as the index reached a high of 89.53 in 2008. Incidentally, even after such high readings, the downfall in the market still persisted until the S&P 500 finally fell.
For the ordinary trader who simply wish to focus on the stock index futures, the lack of volatility means that they need to be more patient and selective in entering possible spots of profit margins since these are relatively a lot smaller in this type of environment.

The beauty of trading future is attributed to the fact that there are plenty of other markets that are non-correlated and are not adversely affected by the changes in volatility of the stock market. The question is, does volatility have an impact on trade? Perhaps in a way yes and no at the same time. On one hand, the more volatile a market is to trade, the heftier the moves and the better the opportunities. On the other hand, less movement means smaller profit and more patience.

In another unconventional way of looking at volatility is the skills of the trader. If a trader is disciplined enough to perform all the necessary low-risk viable strategy and large movements in the market then he/she has a better chance to look for better opportunities. For those who lacks the discipline and patience, trading in a volatile market can prove to be unsuccessful.

Last Updated: November 17th, 2021