This Week in VIX and VXN

On the ride in this past week I heard an analyst on the radio comment that he felt VIX was heading below 10 in the near term. Although this is possible as VIX was under 10.00 as recently as January of 2007 this forecast may be a bit premature. September and October have historically had some surprises for the market and not positive surprises. VIX trading seems to indicate the market is anticipating some sort of surprise of the negative kind over the next couple months. Which always leads me to think, if the market anticipates it, is it really a surprise?

VIX rose pretty dramatically, but off a pretty low base last week to climb almost 13%. Friday’s close of 15.18 is still considered a pretty low level relative to recent history, but do keep in mind the realized volatility of the S&P 500 Index has been in the single digits as of late. Lack of realized market volatility can result in a low VIX. Looking forward along the curve, those prices did not move nearly as much as VIX, but VIX futures have been and continue to discount a higher VIX in the near term.

Implied volatility of NDX options spiked up as well risking over 20% to 16.60. Historically VXN has been quoted at a premium to VIX and that spread was pretty narrow last week. Volatility reverts to a mean over time as does the spread between many volatility indexes. This is just what happened between VIX and VXN last week. The VXN curve flattened a little as VXN futures rose at a magnitude that was much less than the spot index.

Just a quick note – CBOE is holding a second Risk Management Conference which will have several presentations focusing on volatility trading. More information can be found at the link below –

Also, if you have interest in the VIX options, Exchange Traded Notes, and Exchange Traded Funds I posted a review of those markets last night –