Overvixing and Undervixing

There is a clear correlation between the VIX and percent change in SPX. Sometimes VIX runs higher than the SPX change implies. I call that “overvixing” (overstatement of VIX). The opposite is “undervixing” (understatement of VIX).

When the market overvixes, typically it mean-reverts strongly with an SPX rally and a VIX drop. When the market undervixes, it typically doesn’t strongly mean-revert; it gradually gets more and more undervixed until an event that causes an overvixed drop in SPX. So, overvixing is corrected swiftly due to market maker vanna exposure while undervixing needs a catalyst to be corrected.

These terms were originally coined on the Wizard of Ops Twitter: https://twitter.com/WizOfOps/status/1450080292476182528