Market Measures - October 21, 2025 - Why Volatility Doesn't Follow Price
Update: 2025-10-21
Description
A market measure segment explored why volatility behavior doesn't directly correlate with price movement in equity markets. Using five years of S&P 500 (SPY) data, researchers demonstrated that implied volatility acts independently of price direction.
Key findings revealed the strongest correlation exists between volume and IV Rank (IVR) at 0.5, while price and volatility showed minimal connection. The scatter plot visualization confirmed volatility tends to contract fastest when both trading volume and IVR are elevated.
For traders, this means focusing on IV metrics rather than price movement when assessing market stress. Peak fear moments, characterized by surging IVR and volume, typically present optimal opportunities to fade volatility, despite feeling uncomfortable in the moment.
Key findings revealed the strongest correlation exists between volume and IV Rank (IVR) at 0.5, while price and volatility showed minimal connection. The scatter plot visualization confirmed volatility tends to contract fastest when both trading volume and IVR are elevated.
For traders, this means focusing on IV metrics rather than price movement when assessing market stress. Peak fear moments, characterized by surging IVR and volume, typically present optimal opportunities to fade volatility, despite feeling uncomfortable in the moment.
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