“All anyone wants to do is talk about how low VIX has gotten.” That quote comes from Marty Kearney at the Options Institute on Friday. It is true, VIX is low. 2012 was the calmest year for the stock market as far as day to day volatility goes and the result is market complacency, lack of any concern, and much lower implied volatility than the market has had since before the crisis in 2008 to 2009. I find the January future premium of 0.79 a bit rich considering there are only two trading days remaining until January expiration. This observation may have me doing some data mining this weekend to explore the historical spread going into the weekend before expiration.
VXN ticked up slightly on the week even though the underlying index moved up a bit as well. This is not surprising due to the market being in the early phases of earnings season. Implied volatility of individual stock options tends to rise around an earnings announcement. Since the top ten stocks in NDX make up 50% of NDX weighting, VXN may be influenced by an increase in the implied volatility of some of these components.
In 2012 the spread between VXN and VIX was on average around 1.50, spreading out to almost 3.00 points and narrowing as much as parity. Some of the periods of a wide spread came during the earnings seasons in 2012 and once earning was behind us, the spread returned to a normal level. As of Friday’s close the VXN – VIX spread was at 2.51. In the futures markets the Jan VXN – Jan VIX Spread was 2.50 and Feb VXN – Feb VIX Spread was 2.30.