Tranquil, w/i restrained volatility

Update: read sequel article here.

August 2016 saw the average closing price of volatility at only 12.4%, just qualifying for the bottom decile of this monthly statistic, going back a few decades.  And the S&P changed only -0.1% for the month.  The last time we had an outer-decile month for volatility was the two-month streak in 2014.  There the daily June levels averaged 11.5%, while for July it was 12.3%.  One can see all three of these months in red, on the bottom of the time series charts below.  And what we show comports to the myriad previous analysis of volatility (examples are here, here, here, here, here, here), which is that the drastically-low volatility recently in the stock market would likely mean-revert (particularly in technology and real estate) but not necessarily lead straight away to the extent of ultra-high volatility. 

We see in the chart above that the typical streak duration for lowest-decile VIX, similar to what we just had in August, is less than two months.  Put differently, it is rare to occur and as rare to have multiple of these months clustered alongside one another (though as we can see from the early 1990s they can be close enough to appear to be alternating months).

In the blue data on the higher of the two time series charts, we see the highest-volatility month doesn't generally rapidly follow a lowest-volatility month.  Additionally the highest-decile months tend to have an average streak of three months.  Implying slightly more close clustering in the rarer occurrences of extreme volatility months.