This week, there has been some publicity about the fact that $VIX is (or has?) set the record for consecutive closes below 10. However, both articles that I saw (one by Bloomberg, one by Ryan Dietrich) cited “backdated” data that – while representative – wasn’t actually correct. The only other time in history where $VIX closed below 10 for multiple days in a row occurred in December 1993.
At that time, the $VIX calculation involved 4 series of $OEX options (the most popular and liquid index option at the time). That was the original $VIX calculation, and it was introduced earlier in 1993. It persisted through 2003. So, in December of 1993, the only $VIX calculation was that “original” $VIX. Today, the symbol $VXO denotes that original $VIX calculation which is still being disseminated today.
In 2003, the $VIX calculation changed. Instead of using four series of $OEX options, the calculation began to use two complete strips of monthly $SPX options. $SPX options had replaced $OEX as the most active index option. Moreover, the use of the strips allowed the introduction of many, many strikes into the calculation – supposedly giving a better measure of implied volatility. In reality, the original $VIX and the “new” $VIX of 2003 were quite similar…
This excerpt was taken from the 7/21/17 edition of The Option Strategist Newsletter. Sign up today to read the full article.