The standard deviation of equity returns is volatility. Then what is the standard deviation of volatility? The volatility of volatility. One way of looking at this is to take the volatility of the VIX index. If we specifically find the 10 day volatility of the VIX index, it shows us an interesting pattern:
I would describe these spikes in the red line as “mini-freakouts” and “total freakouts”. Go ahead and choose some spikes on the graph – many of them point to bottoming processes or in precipitous falls in the S&P 500. This current spike could be a bottom being set in, or more of a prelude to further calamity as it was on October 22, 2008 (though by that point the market had already fallen to sub 900 levels).
What is really interesting is that this current freakout in volatility of volatility trumps every other time period we could look at. Just what does this spike portend…
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Vulga is the greek letter for it. Its the 2nd derivative. vega (volatiliy), vulga(vol of vol)