The CBOE volatility index VIX measures the market’s expectation of future volatility. It is the gauge of S&P500 equity market volatility.
The spikes to the top and the long phases of relatively low volatility are reflected in a left-leaning distribution diagram and a long tail towards the higher panic levels. The median value is 17%, meaning 50% of the prices are above (below) this level.
The next chart shows the distribution of returns over 25 trading days. The median price movement being slightly shifted to the negative area shows the mean reverting characteristics of volatility.
Analysing the level of VIX and the returns afterwards yields an even more interesting picture:
The green line gives the 25 bar percentage returns of VIX, with VIX noting above 25, the red line gives the returns with VIX below 15. Observe the median of the two lines:
The median 25 bar return with VIX above 25 (green) is around -15%, only 20% of the returns are positive. The return with vix below 15 (red) is above 0% and with a fat tail to positive returns. Data from 2004-2018
The above chart suggests that going short on volatility, if VIX is above 25, seems to be a good idea, the next chart shows what will most probably go wrong during the next 25 days. The distribution diagram gives the maximum adverse movement of the VIX.
The green line, VIX above 25, shows a +10% median maximum up movement over 25 days. So do not expect a short vola position to be without risk.
On the other side, the distribution of the maximum loss of the VIX during a 25 day period shows a median of below -20%.