First things first as the six tradable volatility markets all had their April contracts settle this morning. Settlement for each market was –
- CBOE Volatility Index (VIX) – 15.46
- CBOE NASDAQ-100 Volatility Index (VXN) – 16.65
- CBOE Emerging Markets ETF Volatility Index (VXEEM) – 21.18
- CBOE Brazil ETF Volatility Index (VXEWZ) – 22.30
- CBOE Gold ETF Volatility Index (GVZ) – 28.50
- CBOE Crude Oil Volatility Index (OXV) – 28.27
After a one day reprieve the US stock market took it on the chin again today. The S&P 500 was down over 22 points or 1.43% on the day and VIX reacted as one would expect. The spot VIX index was up 2.55 to 16.51 for a rise of 18.27% and the newly christened from month May Futures climbed 1.70 to 16.45 or 11.53% on the day. The May futures are at a slight discount to VIX, but not quite enough to declare backwardation. June futures are at a slight premium and as can be seen on the blue line on the chart below, the VIX curve is maintaining a fairly ‘normal’ share related to history. Despite April futures going off the board the volume in the futures arena was very strong at 334,338 contract changing hands. This marks the second busiest day in history behind Monday’s tremendous volume day.
The gold market had a second day of ‘non-activity’ relative to recent moves. GLD was practically unchanged on the day. Until last Thursday this is the sort of price action gold traders had become accustomed to in 2013. The result of this return to calm was a 10% drop in the CBOE Gold Volatility Index (GVZ). The front month contract was slightly lower and the June and July contracts were actually unchanged on the day. Note the graph below that shows the GVZ curves for yesterday and today. Implied volatility in all markets tends to overshoot to the upside when a market is in panic mode. I think GLD Friday and Monday qualifies as panic mode. Traders that put money to work with an outlook for volatility are aware of this tendency and the pricing of these three futures contracts reflected this tendency.