The Volatility Index has practically been cut in half since the highs earlier this year. With the Index right now in the mid-20s, it is interesting to note that historically the $VIX loves to make 52-week lows in December. We know that the $VIX and the S&P500 are inversely correlated. So it makes sense that while seasonality favors stocks going into year end, this is usually a time for volatility to subside.
According to VIX AND MORE, “In any given year, there is about a 40% chance that the $VIX will make its annual low in December”. In addition, “the bottom usually comes in the last half of the month and most often just before Christmas.”
Last year’s December low in the VIX made it five pre-Christmas bottoms in eight years. In 2009, the $VIX made its annual low on Christmas eve. In 2004, the lows were put in on December 23rd. In 2003 & 2006, the $VIX bottomed out for the year on December 18th.
This chart shows the Monthly Distribution of Annual Lows in the $VIX going back to 1990. No other month is even close:
From VIX AND MORE – In three trading sessions the VIX is already more than 20% off of its 30.91 close from last Thursday. It seems rather far-fetched to think that the VIX will plummet all the way below the current 2011 low reading of 14.27 from April 28th of this year (a date that is provisionally included in the chart) but stranger things have happened.