12.08.2011
By Terry Flanagan

Volatility Settling Down

Although market volatility and trading volume has continuing through the past several months, it’s beginning to show signs of trailing off.

Market volatility over the past several months has been at elevated levels, as investors braced for the ongoing European debt concerns and as fears of a stagnant economy remained.

“The bottom line is the market is having a very difficult time dealing with the impact of potential Greek default or a variation thereof,” said Daniel Deming, senior trading managing partner at Stutland Volatility Group and a market maker at the Chicago Board Options Exchange’s Volatility Index Options pit. “The market is getting very anxious about the possible outcomes. The perception of a European default, within global economic community is potentially very disastrous. The slowdown in the U.S. economy is also impacting anxiety in the marketplace, increasing the crisis on confidence.”

However, as the CBOE Volatility Index has shown, it’s been difficult for volatility to remain high without consistent macroeconomic issues plaguing the marketplace. The VIX has been on a wild ride since August, with two and three percent intraday swings occurring on a regular basis. The surges have come in the wake of a slew of macroeconomic events, including the European debt crisis, the U.S. debt downgrade, and the collapse of MF Global.

The VIX reached a high of 48 on Aug. 8, as the markets reacted to the lengthy U.S. debt ceiling negotiations and the Standard & Poor’s downgrade of U.S. debt. It then fluctuated from the low-30s to the mid-40s in the following months, surging as European debt concerns weighed on investors and declining as hopes for a potential resolution surfaced. In late October, the VIX had declined to as low as 25. As of mid-day Dec. 8, the VIX was trading at about 30.

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