Condor Options

Joe Weisenthal and Eric Platt wonder whether there is a relationship between the level of the VIX and the number of news articles about it.

“The lines are noisy,” they admit, “so this isn’t totally weird, but generally the two lines match each other, so at some point they’ll probably converge.” That’s not exactly a strident prediction, and it would be consistent with the most likely relationship, which is that news articles about VIX are a lagging or, at best, coincident indicator of the level of VIX itself.

But in case anyone is tempted to squeeze any additional dubious causality out of that chart, focus on the last major volatility spike, which was in August 2011, and notice that the red news line seems to jump a little more quickly. Is that evidence for media prescience? Unlikely. Here’s what happens in the mainstream press whenever implied volatility rises from a relatively low level. With VIX previously closing at, say, 15, an ordinary market decline might be good for a jump of a few points in the index. Because a trivial two-point jump in a VIX at 15 equals a 13% increase, journalists get to write headlines about “double digit” percentage gains in the VIX, which sounds meaningful when you put it that way. Even though it is only the level of VIX versus trailing stock volatility that really matters, most media outlets cover the absolute moves in the level of the index instead.

I’ll bet this tendency single-handedly accounts for any residual VIX/news difference you might see while squinting at that chart.