Something is not right with the VIX.
So says Goldman Sachs, which thinks the gauge — officially known as the Cboe Volatility Index and viewed as a proxy for market fear — is too low.
At the core of the firm’s stance is the disparity between how much the benchmark S&P 500 has moved in past weeks, relative to the comparatively small move in the VIX.
“There is a mismatch between how little SPX options cost (June straddle with over five weeks to maturity costs 3%) and how much the SPX has been moving (3.5% rally over the past five trading days),” Rocky Fishman, an equity derivatives strategist at Goldman, wrote in a client note.
While the VIX traded in the mid-13s on Friday, Fishman says recent economic data is more consistent with a level exceeding 15.