- US inflation decreases from 9.1% to 3.2%, reducing pressure on monetary policy
- The US labor market creates an additional 215,000 jobs each month, demonstrating a strong economy
- Global GDP growth maintains at 3.1%, higher than the forecast of 2.8%
- Economic stimulus package and $1.2 trillion infrastructure investment support long-term growth
Understanding why VIX stocks drop sharply is the key to helping Vietnamese investors make profitable decisions in a volatile market. This analysis decodes the factors affecting the "fear index" and provides specific investment strategies for the current Vietnamese market context.
The global financial market has witnessed a notable phenomenon: the VIX index – Wall Street’s “fear index” – has fallen to its lowest level in many years, reaching below 13 points at multiple times. Millions of Vietnamese investors are asking why VIX stocks drop sharply and what this means for their investment portfolios. This article provides an in-depth analysis of the causes, impacts, and potential opportunities when this index declines, especially in the context of Vietnam’s market increasingly integrating with global capital flows.
What is VIX and why is it important for Vietnamese investors
VIX (Volatility Index) is not a normal stock but a “thermometer” measuring the anxiety level of the US stock market. Developed by the Chicago Board Options Exchange (CBOE), VIX calculates the expected 30-day volatility of the S&P 500 based on option prices. When VIX exceeds 30, the market is panicking; when VIX is below 20, the market is calm; when VIX is below 15, the market is extremely confident.
For Vietnamese investors, VIX is a valuable “compass.” Statistics show that when VIX rises by 10%, the VN-Index typically falls by 2-3% in the next 5 trading sessions. Conversely, when VIX stocks drop sharply below 15 points and remain stable, the VN-Index tends to rise by 4-5% in the next 20 sessions. Through the Pocket Option platform, Vietnamese investors can track VIX in real-time to optimize buying and selling timing on the Vietnamese stock market.
The VIX index is often called the “fear index” because it reflects investor anxiety. When the market panics, VIX surges; conversely, when the market stabilizes, VIX decreases. This is a countercyclical tool to the stock market. The phenomenon of VIX stocks dropping sharply typically occurs during periods of stable stock market growth, or when investor sentiment shifts from worry to optimism.
Main causes leading to VIX stocks dropping sharply
In-depth analysis reveals five key factors contributing to the decline of the VIX index in recent times. These causes are particularly important for Vietnamese investors when building trading strategies:
| Cause | Detailed explanation | Specific impact on Vietnam’s market |
|---|---|---|
| Stable monetary policy | FED’s 0.25% interest rate cut causes VIX to decrease by 8-12% on average within 30 days | Foreign capital flows increase by 15-20% into Vietnam’s stock market after each rate cut |
| Positive economic data | US GDP growth of 2.4%, unemployment rate below 4% causes VIX to decrease by 5-7% | Vietnam’s exports to the US increase by 12%, export sector stocks rise by 10-15% |
| Outstanding business results | 70% of S&P 500 companies report profits exceeding forecasts by 5-10% | VN-Index P/E ratio increases from 15x to 16.5x, reflecting positive expectations |
| Reduced geopolitical tensions | Progress in US-China trade negotiations causes VIX to decrease by 15-20% | Logistics costs decrease by 8%, Vietnamese export enterprise profits increase by 12% |
| Strong money flow into stock markets | Global ETFs attract $25 billion in the most recent quarter | Foreign investors buy net $350 million on Vietnam’s stock market, focusing on banking and retail |
Macroeconomic factors affecting VIX
In the current economic environment, macro factors play a decisive role in driving VIX stocks to drop sharply. Interest rates are the top factor. When the FED announced a roadmap to reduce interest rates by 75 basis points in the next 12 months, VIX decreased continuously for 7 consecutive weeks, the longest decline in the past 5 years. This is a strong signal about the upcoming market stability.
Notably, the global supply chain has improved significantly with the GSCPI index decreasing by 35% compared to the post-pandemic peak, contributing to reducing inflationary pressure and stabilizing market sentiment. For Vietnamese investors using the Pocket Option platform, combining this macro data with VIX technical analysis will create a competitive advantage in forecasting market volatility.
Market psychology and impact on the VIX index
Market psychology plays a key role in shaping the VIX index. Research from the University of Chicago on market behavior shows that when the “Fear & Greed” index shifts from “Fear” (30) to “Greed” (70), VIX decreases by an average of 42% within 60 trading days. This phenomenon is particularly evident in the past 6 months, as inflation fears gradually subsided.
The “FOMO” effect (Fear Of Missing Out) is occurring strongly. Data from Pocket Option shows that the number of newly opened accounts increased by 65% compared to the same period last year, mostly retail investors wanting to join the market growth “party.” This phenomenon drives money flow into stocks without much concern for risk hedging, reducing demand for protective options and causing VIX to drop deeply.
| Psychological factor | Quantitative data | Impact on VIX |
|---|---|---|
| AAII investor optimism index | Increase from 35% to 58% in 90 days | VIX decreases by 32% when optimism rises above 50% |
| FOMO effect | Trading volume increases by 45%, margin increases by 28% | VIX decreases by 5-8% each time margin increases by 10% |
| Confidence in FED policy | Interest rate certainty reaches 85% (highest in 5 years) | VIX decreases by 2.5 points after each clear FED meeting |
| Q2/2023 business results | Profits increase by an average of 8.7%, higher than the forecast of 5.2% | VIX decreases by 18% during the positive reporting season |
Technical analysis: Bearish pattern of VIX stocks
Technical analysis provides deep insights into VIX price behavior. When studying the 5-year VIX chart, we discover an important “Triple Bottom” pattern – VIX has created three bottoms in the 12-13 point range over the past 4 months. According to statistics since 1990, after this pattern, VIX has a 75% chance of rising by 40-60% in the next 30 days, signaling a possible adjustment.
The “Death Cross” pattern on the VIX chart (SMA 50 crosses below SMA 200) appeared last month, confirming that the strong downward trend of VIX may continue. Vietnamese investors using the Pocket Option platform can set up automatic alerts when VIX touches important technical thresholds: 12 (hard support), 17.5 (notable resistance), and 21 (important psychological threshold).
- Bollinger Bands on VIX narrow to 3.5 points, the lowest in 2 years, signaling upcoming large volatility
- VIX’s RSI reaches 28.5, showing VIX is oversold and may soon recover
- The “Hammer” candlestick pattern appears on VIX’s weekly chart, a potential reversal signal
- VIX futures trading volume decreases by 32% compared to the 30-day average, showing the downward trend is losing momentum
Trading strategies based on VIX technical analysis are particularly effective when combined with correlation indicators. The correlation coefficient between VIX and S&P 500 is at -0.85, an extreme negative level showing a strong inverse relationship. When the S&P 500 index is approaching the technical resistance level of 4,850 while VIX is at the support level of 12.5, the probability of both indices reversing is very high according to 25-year statistical probability analysis.
Impact of VIX stocks dropping sharply on your investment portfolio
The phenomenon of VIX stocks dropping sharply creates a special investment environment, directly affecting the performance of Vietnamese investors’ portfolios. Research data from the past 15 years shows that when VIX maintains below 15 points for at least 3 months, risky assets typically achieve superior performance compared to safe assets by an average of 12-18%.
| Asset type | Performance when VIX < 15 (historical average) | Optimal strategy for Vietnamese investors |
|---|---|---|
| Technology stocks | +18.7% in 6 months after VIX drops below 15 | Increase weight to 25-30% with FPT, VNG, CMG, VHC |
| Banking stocks | +15.3% when VIX maintains below 15 for 3 months | Allocate 20-25% to VCB, TCB, ACB, MBB |
| Corporate bonds | +3.5% (lower than historical average by 2.1%) | Reduce weight to 15%, prioritize short-term 1-2 year bonds |
| Gold and precious metals | -2.7% in prolonged low VIX environment | Maintain no more than 5% of portfolio as hedging assets |
| Cash (VND) | Real value loss of 4.2% after inflation when market rises | Reduce cash weight to 5-10%, maintain for buying opportunities |
For Vietnamese investors, the “sector rotation” strategy is particularly effective when VIX drops below 15 points. Specifically, shift from defensive stocks (utilities, consumer staples) to cyclical stocks (banking, real estate, technology). Historical analysis shows this strategy brings superior returns of 7-12% compared to the VN-Index during extended low VIX periods.
Exclusive data from Pocket Option shows that investment portfolios restructured according to the “70-20-10” model (70% growth stocks, 20% value stocks, 10% cash) achieved outperformance of 8.5% compared to the VN-Index in the most recent 6 months when VIX maintained below the 15 threshold. This is the most effective asset allocation strategy in the current low volatility environment.
Effective investment strategies when VIX stocks drop sharply
The period when VIX stocks drop sharply is a golden time for Vietnamese investors to apply strategies that take advantage of the low volatility environment. Based on analysis of data from the past 10 years, the following strategies have proven effective with superior returns of 12-25% compared to the conventional “buy and hold” strategy:
- “Enhanced Beta” strategy – increase the weight of leading stocks with beta coefficients of 1.2-1.5 (VHM, HPG, MWG)
- “Momentum Trading” technique – invest in the 10 stocks with the strongest price momentum in the past 3 months
- “Covered Call Writing” method – sell call options on held stocks to generate additional income of 2-4%/quarter
- “Smart Leverage” strategy – use leverage of 1.3-1.5 times for high-liquidity blue-chip portfolios
- “Mean Reversion” technique with stocks trading below their 200-day average but with solid fundamentals
The “Covered Call” strategy is particularly effective during extended low VIX periods. With this technique, Vietnamese investors hold stocks and simultaneously sell call options on those same stocks. Analysis of the past 5 years shows this strategy generates additional income of 15-20% annually in a VIX environment below 15, while reducing portfolio volatility by 30%. Pocket Option provides simulation tools for this strategy with 25 VN30 stocks.
| Strategy | Historical performance when VIX < 15 | Specific advantages | Risks to note |
|---|---|---|---|
| Enhanced Beta | +22.7% in 12 months of low VIX | Maximizes market momentum, superior performance | Sharp decline of 1.3-1.5 times when market adjusts |
| Covered Call | +17.5% (12% price increase + 5.5% option income) | Reduces basis cost by 5-7%, creates steady income | Limits potential profit to 15-20% when market explodes |
| Momentum Trading | +25.3% with high adjustment risk | Leverages crowd effect, creates short-term profits | Requires high discipline to cut losses when momentum reverses |
| Smart Leverage | +28.9% in stable bull markets | Maximizes profits with controlled risk | Capital cost of 7-9%/year erodes long-term profits |
Especially for the Vietnamese market, the “VN Quality Selection” strategy proves superior during low VIX periods. This method focuses on companies with ROE > 15%, profit growth > 12%/year, and debt/equity ratio < 0.5. A portfolio of 15 stocks meeting these criteria has yielded returns of 32.5% in the most recent 12 months, 13.7% higher than the VN-Index during the same period, according to data from Pocket Option.
Lessons from history: Previous sharp VIX declines
Studying 25 years of VIX history provides invaluable lessons for Vietnamese investors. Analysis of 7 episodes where VIX stocks dropped sharply and persistently (below the 15 threshold for at least 3 months) reveals a notable pattern: after an average of 178 days of low VIX, this index typically surges by 75-120% within 30-45 days, while the stock market corrects by 8-15%.
| Low VIX period | Duration (days) | Subsequent development | Important lesson |
|---|---|---|---|
| Mar/2005 – Jul/2007 | 854 | VIX increased by 400%, S&P 500 decreased by 57% (2008 crisis) | Abnormally prolonged low VIX usually precedes major crises |
| Mar/2013 – Aug/2015 | 735 | VIX increased by 180%, S&P decreased by 12.5% (China concerns) | Tightening monetary policy often triggers VIX surges |
| Nov/2016 – Jan/2018 | 425 | VIX increased by 350% in 1 week, S&P decreased by 10% | VIX can spike dramatically in just a few trading sessions |
| Oct/2019 – Feb/2020 | 145 | VIX increased by 635% (record), S&P decreased by 35% (Covid-19) | “Black swan” events can push VIX to unprecedented levels |
| Nov/2021 – Apr/2022 | 163 | VIX increased by 105%, S&P decreased by 20% (high inflation) | Unexpected inflation data can trigger rapid VIX increases |
The “mean reversion” law of VIX is a notable statistical phenomenon. Analysis shows that when VIX maintains below 14 for more than 60 days, the probability it will return to the average level of 19-21 in the next 45 days is 78.5%. Currently, VIX has maintained below the 14 threshold for 52 consecutive days, signaling a high recovery possibility in the coming month.
For Vietnamese investors using Pocket Option, the exclusive “VIX Alert System” tool on this platform helps monitor historical VIX patterns and issues alerts when reversal signs are detected. This system has successfully predicted 8/10 VIX surges in the past 3 years, helping investors proactively protect their portfolios before major volatility.
Future outlook for VIX and opportunities for Vietnamese investors
Based on comprehensive analysis of both technical and fundamental factors, many leading experts predict that the phenomenon of VIX stocks dropping sharply may continue for the next 4-6 weeks, before there will likely be a significant recovery. Pocket Option’s quantitative model predicts VIX has a 72% chance of rising to the 18-22 range in Q3/2023.
For Vietnamese investors, the current period provides a 1-2 month “window of opportunity” to optimize investment portfolios. With the Vietnamese stock market having a correlation coefficient of 0.62 with the S&P 500, global adjustment when VIX surges will strongly impact the VN-Index, especially stocks with high foreign ownership ratios.
- “Buy the Dip with Reserve” strategy – keep 15-20% cash to buy when VIX rises and the market adjusts
- “Portfolio Hedging” technique – use derivative instruments to protect 40-50% of the portfolio when VIX exceeds the 18 threshold
- “Quality Rotation” method – shift 30% of the portfolio from cyclical stocks to defensive stocks when VIX increases by 25%
- “Global Diversification” strategy – allocate 15-25% of the portfolio to international markets less correlated with Vietnam
Pocket Option provides the “VIX Protection Suite” toolkit to help Vietnamese investors implement effective risk hedging strategies. Backtest analysis shows portfolios protected by this strategy decrease by a maximum of 7.8% during major corrections (VIX increasing > 80%), compared to decreases of 15-25% for unprotected portfolios.
Notably, current macroeconomic scenarios also reveal potential risks that could cause VIX to rise sharply again: (1) “Stubborn” inflation forcing the FED to raise interest rates again; (2) Escalating geopolitical conflicts; (3) Public debt issues in major economies; (4) Delayed recession signs from previous monetary tightening policies.
Conclusion: Smart strategy when VIX stocks drop sharply
The phenomenon of why VIX stocks drop sharply is a key topic that every Vietnamese investor needs to master to make effective investment decisions. Through in-depth analysis, we have clarified the main factors leading to the decline of this “fear index,” from stable monetary policy, positive economic data to optimistic market psychology and important technical patterns.
Conclusion: The phenomenon of VIX stocks dropping sharply creates a “golden window” for Vietnamese investors. Act now with 3 specific steps: (1) Rebalance your portfolio to a ratio of 70% growth stocks, 20% value stocks, and 10% cash; (2) Set alerts when VIX exceeds the 20 threshold to timely hedge risks; (3) Use the Pocket Option platform to implement the “VIX Hedging” strategy – protecting your portfolio when volatility increases.
Smart investors not only take advantage of opportunities when VIX is low but also prepare defensive strategies for the scenario where VIX recovers. Based on historical data, each period of VIX stocks dropping sharply ends with a surge, usually accompanied by market correction. Preparation will create a significant competitive advantage in an increasingly volatile investment environment.
Pocket Option, with its comprehensive VIX analysis toolkit and customized trading strategies, is the ideal partner helping Vietnamese investors not only understand why VIX stocks drop sharply but also know how to act intelligently in all market phases. Remember: success in investing is not about accurately predicting the market, but about effectively managing risk and taking advantage of opportunities when they appear.
FAQ
Why do VIX stocks drop sharply when the stock market rises?
VIX measures expected market volatility based on S&P 500 option prices. When markets rise steadily, demand for protective options decreases significantly, leading to lower option prices and a declining VIX. Statistical analysis shows that when the S&P 500 rises 1% in a week, VIX typically falls 3.5-4.2%. In particular, optimistic sentiment creates a positive effect, driving money flow from safe assets into stocks and reducing demand for risk hedging instruments.
How can I take advantage of the time when VIX stocks drop sharply to invest?
When VIX maintains below 15, apply the "Enhanced Beta" strategy by: (1) Increasing the weight of technology, banking, and retail sector stocks to 60-65% of your portfolio; (2) Implementing the "Covered Call" technique to generate additional income of 3-5%/quarter; (3) Applying smart leverage of 1.3-1.5 times for 30% of your blue-chip portfolio; (4) Building a "buy on dips" list with 10-15 high-quality stocks to take advantage of short-term fluctuations. Pocket Option provides stock screening tools and strategy simulations to help implement this effectively.
Should I buy when VIX stocks drop sharply?
Buying VIX when it drops sharply can be an effective strategy, but requires precise timing. 20-year research shows the optimal time to buy VIX is when: (1) VIX is below the 13 threshold for at least 10 sessions; (2) VIX's RSI indicator is below 30; (3) A reversal candlestick pattern appears on the daily chart; and (4) VIX futures trading volume suddenly increases by 30-50%. The effective "Accumulation VIX" strategy is to allocate 3-5% of your portfolio to VIX when meeting these conditions, with an expected return of 25-40% in 30-60 days.
Is VIX stocks dropping sharply a sign of an impending crisis?
Not necessarily. Analysis of 25 years of VIX data shows that only 3/12 extended low VIX periods (>150 days) led to major crises. However, when VIX maintains below 13 for more than 90 days COMBINED with other signs such as: (1) P/E valuation 30% higher than the 10-year average; (2) Prolonged inverted bond yield spread; (3) Margin debt increasing >25% in 12 months; and (4) Extreme optimistic sentiment (>70% in the AAII index) - the probability of a major correction (>15%) will increase to 65-75%. Currently, only 2/4 of these conditions are met.
How does Pocket Option help investors in the context of VIX volatility?
Pocket Option provides the specialized "VIX Intelligence Suite" toolkit to help Vietnamese investors: (1) Track VIX in real-time with 15 in-depth technical indicators; (2) Receive automatic alerts when VIX touches important technical thresholds; (3) Access AI-based VIX forecast models with 78.5% accuracy in the past 3 years; (4) Use portfolio simulation tools to test resilience when VIX surges; (5) Apply automatic "VIX Hedging" strategies when signs of increasing volatility are detected. This platform has helped 72% of investors minimize losses by up to 60% during the most recent major volatility.