Is there a correlation between VIX and speculative stocks? It's no secret that VIX, aka "investor's fear gauge," is the volatility index that goes up when uncertainty increases in the market. It functions to predict and hedge against the upcoming volatility. So its negative correlation with major indexes is no surprise.
Now, how traders expect volatility? When traders see a major sell-off or a massive demand in call or put options. Meaning, the option sellers see higher demand, and options buyers see increased options premium, which is a signal of increased market risk and volatility. As the result, investors seek ways to "hedge" their positions through investing in the VIX index or buying an opposite position leading to a spike in VIX.
Does that mean when there is a spike on VIX, we should also expect a rise in speculative/growth stocks? Sometimes.
Let's take a look at this chart. On top of the panel we have a fairly volatile ticker (SPCE) and on the bottom, we can see the VIX chart (white line). As you can see, for every move, larger than 50%, on VIX, we have seen a relatively large price movement within a month or two after the spike. Is this a coincidence?
Please feel free to share your thoughts and add to my explanations for a better collective learning experience.
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