With the 2018 trading year in the books, and fading into the rearview mirror, it's now easier to contextualize how that year compares to the past couple decades of trading - especially those that were considered outliers in terms of volatility (1999-2000, 2008-2009).

First, let's look at a chart that shows how the SPY performed in absolute terms over the last 20 years or so:

Contextualizing Recent Moves

As you can see in the chart above, the downdraft in financial markets observed in 2018 so far pales in comparison to the ~50% corrections seen in the early part of this century, and then again in 2008-2009. Although we do need to see how 2019 goes before making any final conclusions.

While the ultimate direction of the financial markets in 2019 is certainly unknown at this point, one can see in the chart above that if anxiety does grip markets at some point in the new year, there's plenty of room left to the downside. This is mostly due to the sheer length and breadth of the bull run observed in the wake of the Great Recession.

Now that we know how stock indices like the SPY performed last year, we can also guesstimate how a gauge of market volatility such as the VIX likely performed - at least at one extreme. This is because stock prices didn't plummet to the same degree that was observed during the other two big corrections observed in the last two decades. As a result one would also surmise that the VIX never challenged it's all-time high (80) - which it didn’t.

The chart below summarizes the behavior of the VIX on average from the start of 2008 to the end of 2017, and compares that to calendar year 2018:

Contextualizing Recent Moves

The biggest takeaway from the above data is that the VIX hit 80 during the 2008-2017 window, but never got above 37 during calendar year 2018. That data reinforces the notion that 2018 wasn't nearly as chaotic as some of the most volatile periods in market history.

One thing that did return to "normal" in 2018, and may have helped contribute to the feeling among investors/traders that last year was more choppy than “usual,” is the number of 1% moves observed during last year.

As you can see in the graph below, the number of 1% moves in the market dropped off dramatically during 2017, and then reverted back to "normal" in 2018:

Contextualizing Recent Moves

Analyzing the data above, one could easily assert that 2017 was an outlier in terms of tranquility in the markets, as opposed to claiming that 2018 was an outlier in terms of volatility. After all, the VIX averaged its lowest level in history during 2017 - meaning literally any year on record would probably feel more volatile in comparison.

We can also see in the above data that the absolute number of days with a 1% move were far fewer in 2018 than the 2008-2009 window.

Taken together, the data reviewed in this post appears to indicate that the trading year 2018 was a lot closer to “average” than it was to an extreme, in terms of market volatility. The fact that 2017 was one of the most tranquil trading years in recent memory, was probably a big factor in making the end of 2018 feel like a big shift had occurred, as opposed to simply a return to “normal.”

Immediately after the holidays, the VIX did start to trend back down (dropping below 20 near the end of January before slipping down around 15 the first week of February) - although one wonders how long that will hold with news expected soon on trade negotiations between the United States and China, not to mention the ongoing political standoff in the United States relating to “border security.”

If you want to review this data further, we invite you to watch the complete episode of Market Measures focusing on “Contextualizing Recent Moves” when your schedule allows.

Should you have any questions about the 2018 trading environment, or the current one, don’t hesitate to leave a message in the space below, or send us a message on Twitter (@tastytrade) or email (support@tastytrade.com).


We look forward to hearing from you!


Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.


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