In a research note to clients, Goldman said S&P 500 three-month realized volatility, which measures pricing during the past three months, stood at 66 percent, surpassing levels in the 1987 stock market crash and the Depression and is only two points below the level reached during 1929.
The Chicago Board Options Exchange Volatility Index or so-called VIX, is priced off of shorter-dated S&P 500 options. The index spiked to a record closing high on Thursday of 80.9 after two straight days of declines in the S&P 500.
Analysts closely follow the relationship between the VIX and the historical volatility for the S&P 500.
The two are linked because VIX tracks the expected volatility of the benchmark over the next 30 days and so past behavior reflected by historical volatility on the S&P 500 will also guide those expectations about future volatility.
The VIX, Wall Street's main barometer of investor fear, rises when traders bid up the prices of S&P 500 index options and tends to move inversely to the benchmark.
High realized volatility and new stock market lows have kept the VIX elevated and the options fear gauge will remain elevated as long as the dramatic swings in the benchmark persist.
Goldman noted that while the financial crisis started well over a year ago, a new shift in the volatility regime occurred in September 2008.
The strategists said the average daily VIX level has been a 62 reading since the beginning of October, more than three times the long-run average, and the prolonged regime shift in shorter-dated implied volatility is pulling up longer-dated implieds.
S&P 500 realized volatility is at 66 percent. 'Current levels are beyond modern comparison as the average peak in volatility across the last nine bear markets back to the 1950's was 30 percent with a high of 64 percent in 1987,' the note said.
The back-to-back down moves of more than 6 percent in the S&P 500 over the last two days has pushed S&P 500 realized volatility beyond the 1987 level.
The strategists said the average daily S&P 500 return so far in November has been plus or minus 3.8 percent with seven of the 14 trading days experiencing a close-to-close return of more than 4 percent in absolute value.
The next landmark high is the 68 percent realized volatility level set during 1929.
'We will likely pass that number in short order. That will make the current market as being the highest sustained volatility environment in S&P 500 history,' they said.
(Reporting by Doris Frankel; Editing by Andrea Ricci) Keywords: OPTIONS VOLATILITY/S&P (firstname.lastname@example.org; +1 312 408 8752; Reuters Messaging: email@example.com) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.