Systematic traders and investors regularly form a fact-based picture of the market environment. Typical questions are: How much volatility is priced into the broad market? Is short-term volatility higher than longer-term volatility? Are more put or call options being traded? Have the major indices been above or below their average for weeks? A dashboard with the key figures can help here. It shows the values side by side and reveals connections that are easily missed when looking at single charts.
Most of these values are public: the VIX and related volatility indices come from CBOE, the yields of US Treasuries from the Federal Reserve, the prices of index futures from the exchanges. Many finance portals show the individual figures. What is harder is to look at volatility, rates and trends together and to put them in context over different periods. A VIX of 19 says little on its own. Only the comparison with the last year, with the previous day and with the term structure turns it into an assessment.
This guide describes the building blocks of a market overview: volatility indices, the shape of the volatility curve, put/call ratios, the rate structure and the trend across indices and sectors. Every term is defined in the Glossary and linked here at its first occurrence. The end shows, with a screenshot, how Foliograph brings these values together on one page.
What a market overview has to deliver
A market overview is not a price list. Its purpose is to show at a glance whether the environment is calm or tense and whether that is changing right now. Besides the current value, three additions help here: the change over one day and one week, the range over a longer period and the position within that range.
The position is easiest to express as a percentile, on the same principle as the IV Percentile of a single underlying: on what share of the days in the chosen window was the value lower than today? A VIX in the 85th percentile over one year means it stood lower on 85% of the trading days of the last year. The chosen period shapes the assessment. Over three months a moderately high value quickly reaches the upper edge, over five years the crisis peaks are part of the scale.
Just as important is showing the figures together. Volatility, rates and trend belong on the same page because they put each other into context. A rising VIX with stable index trends is a different situation from a rising VIX while the VIX/VIX3M ratio climbs above 1 and several indices drop below their moving average. In the second case several figures show higher short-term volatility and weaker price trends at the same time. An overview makes such a constellation visible without opening several charts.
Volatility indices side by side
The VIX measures the implied volatility of S&P 500 options for the next 30 days. It is the best known but not the only volatility index. VXN and RVX apply the same method to the Nasdaq-100 and the Russell 2000. If they are clearly above the VIX, the market prices in more volatility for technology stocks or smaller companies than for the broad market.
Two indices describe not the level but the shape of expectations. The VVIX is the implied volatility of the VIX itself, the priced-in volatility of volatility. The CBOE SKEW Index is calculated from the prices of far out-of-the-money options on the S&P 500 and quoted in index points, mostly between 100 and 150. A high value describes that option prices give more weight to extreme declines, regardless of where the VIX stands. How much protection is actually bought cannot be read from it directly.
Because all these indices condense option prices, they often rise together. Divergences can be interesting for the assessment: a VVIX that climbs while the VIX stays calm, a VIX that rises together with the S&P 500 although the two usually move in opposite directions, or a SKEW near its annual high with a low VIX.
The slope of the volatility curve
The VIX shows how strongly the market could fluctuate over the next 30 days. The VIX3M looks at a period of three months instead. The VIX/VIX3M ratio shows whether more or less fluctuation is expected in the short term than over a longer period. It is normally below 1. If it rises above 1, higher volatility is priced in for the short term, for example in phases of elevated market uncertainty.
The VIX futures curve offers another perspective. It shows the prices of VIX futures with different expiries. If prices rise with maturity, this is called contango. If short-dated contracts trade above longer-dated ones, it is called backwardation. Contango is the more common state for VIX futures.
The shape of this curve also matters for products such as VXX that regularly replace expiring VIX futures with longer-dated ones. In contango a negative roll yield arises, which causes such products to lose value over time if market conditions otherwise stay unchanged. In backwardation the opposite effect is possible. How strong this effect actually turns out depends on how futures prices develop.
Put/call ratios for index and equity options
CBOE publishes the put/call ratio daily for index and equity options. It shows the relation between traded put and call options. A value above 1 means that more puts than calls were traded, below 1 calls predominate.
For index options the ratio is often above 1 because institutional market participants frequently use them for hedging. In equity options, by contrast, calls usually predominate. That is why the absolute value matters less than the comparison with its own history.
A high put/call ratio can point to increased hedging activity but allows no clear conclusion about falling prices. It only shows that more puts were traded relative to calls.
The yield curve as an indicator of the economy and market stress
The yields of US Treasuries provide important clues about the economic environment and the mood in financial markets. Rising yields increase financing costs for companies and can weigh on growth stocks in particular. If yields fall noticeably instead, this can point to lower inflation expectations, expected rate cuts or increased demand for safe assets.
The Yield Curve is particularly revealing because it sets short-term against long-term yields. Normally long-term yields are above short-term ones. If they are below, the curve is called inverted. In the past such an inversion often preceded US recessions but it is not a reliable indicator of their timing.
A market overview therefore shows the yields of US Treasuries from one month to 30 years plus the spreads between 10 and 2 years and between 10 years and 3 months. The comparison with earlier dates makes changes in the rate structure visible and helps to put possible strains on equity markets and the economy into context.
Trend across indices and sectors
While the volatility indices show what fluctuations the market expects, the EMA21 gives orientation on the current trend. It shows whether an index is above or below its exponential moving average of the last 21 periods. The number of consecutive days or weeks above or below this average (the streak) makes visible how long a trend has already lasted.
Comparing different markets is particularly interesting. The EMA21 grid shows at a glance whether only the S&P 500 is above its average or whether other areas such as small caps, transports or semiconductors are moving along with it. In addition, ratios such as consumer discretionary to consumer staples or bonds to stocks show which area has developed more strongly recently.
For the longer-term context the moving averages over 50 and 200 days complement the charts. They show whether short-term moves are also supported by the broader trend.
Frequently asked questions
What does a VIX/VIX3M ratio above 1 mean?
That the annualised volatility priced in for the next 30 days is higher than the one for three months. Most of the time the ratio is below 1, the short-term expectation is then lower than the longer-term one. It typically rises above 1 during phases of acute market moves. Foliograph colours the value in the EMA21 grid orange from 1.0 and red from 1.3.
Why does the market overview show percentiles instead of only absolute values?
Because an absolute value without a yardstick says little. The percentile states on what share of the days in the chosen window the value was lower. You set the window from 3 months to 5 years, the default is one year.
Where does the market overview data come from?
Volatility indices, put/call ratios and index futures come as daily prices through the TWS of Interactive Brokers, the VIX futures curve also from TWS. Foliograph loads Treasury yields from the FRED database of the Federal Reserve Bank of St. Louis. No additional data subscription is needed apart from the market data at IBKR.
How often are the values updated?
Prices and indices every ten minutes while the Trader Workstation is running, the VIX futures curve hourly with the futures refresh and the rate series hourly from FRED. A button in the tab bar starts the fetch immediately. Next to it is the time of the last successful fetch, an old time shows that the connection is missing.
Does the market overview work without a running TWS?
The stored daily prices stay visible and the rate series keep coming from FRED because they do not need TWS. New prices for volatility indices, index futures and the VIX futures curve only arrive once TWS is connected again. The how-to for the TWS API describes the required settings.
Why does SKEW show a change in percent?
The CBOE SKEW index is quoted in index points and moves within a comparatively narrow band. Foliograph therefore shows its daily change in percent in the Volatility table. The range and the percentile also refer to these daily changes over the chosen period, not to the index level. Strong rises on a single day are of particular interest. They show that far out-of-the-money SPX puts have become more expensive relative to the rest. This can reflect increased demand for protection against sharp declines but is no statement about the future direction of prices. The history behind the chart icon shows the index points.
What do the blue dots in the EMA21 grid show?
They mark days on which US macro data was released, such as consumer prices, producer prices, core PCE, the jobs report, jobless claims or GDP. A click opens the published values. This makes it possible to match a move in the grid to the date on which it happened.
Terms on this page
- EMA21 (Exponential moving average over 21 periods)
- IV Percentile (IVP)
- Put/Call Ratio (P/C, put-call ratio)
- SKEW Index (CBOE SKEW, tail risk index)
- SMA50 and SMA200 (Simple Moving Average)
- VIX (CBOE Volatility Index)
- VIX Futures Curve (VIX term structure, VX contracts)
- VIX3M and VIX/VIX3M Ratio (CBOE 3-Month Volatility Index, formerly VXV)
- VVIX (CBOE VIX of VIX, volatility of volatility)
- VXN and RVX (CBOE Nasdaq-100 Volatility Index, CBOE Russell 2000 Volatility Index)
- Yield Curve (Term structure of interest rates, Treasury curve)
Read next
- Trading journal software: local or cloud? What a journal has to deliver, how desktop apps differ from cloud services and how the import from Interactive Brokers works.
- ETF screener with options data Anyone trading options on ETFs should, among other things, watch the current volatility relative to its own history and the liquidity of the option chain. This guide explains these and other key figures.
- Enable the TWS API: allow software to read from the Trader Workstation
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.