Not that I am complaining, but the VIX action this week may turn my weekly VIX review into a daily review. With the grind higher in the stock market for the first few weeks of 2013 and VIX not giving me much to write about I should count my blessings for days like today and just get down to it.
The S&P 500 recovered some from Monday’s drop off gaining just over 9 points. The result of a higher stock was a retreat in the implied volatility of SPX option contracts or VIX which lost 11.16%. Spot VIX does not always tell the whole story (or even half the story) with respect to market volatility. Yesterday VIX closed at a premium to the front six month futures contracts. Today the curve resumed a ‘normal’ contango like shape. Order has been restored in VIX world with the index at a discount to all futures and the futures being priced in an orderly rising fashion the farther out we go in expiration dates. To highlight the curve activity I put the last three closes on the chart below. Also, the futures came up just a bit short volume wise with a total of 299,566 VIX Futures changing hands today which is about 3,000 behind yesterday’s volume.
In the option space March and April Call volume was very heavy. About 800,000 of the 1,390,587 contracts traded today consisted of near dated (March and April) VIX calls. Demand for those calls kept VVIX from falling too much on the day and settling at 90.23 on the day. Also, if that volume number – 1,390,587 – appears to be a big one that’s because it is. Yesterday the VIX Futures market set a volume record, today VIX Options volume was record setting outpacing 1,221,403 on September 11, 2012. Also for some perspective, SPX option volume was 1,084,496, a big day for that arena, but coming in second for most active index volume behind VIX.