This Week in VIX – 1/24/2014

This past week VIX was up just over 45% from 12.44 to 18.14.  This is the biggest weekly rise in VIX since April 2010 which is why there are a few of the ‘I told you so’ posts going around this weekend.  This will not be one of them.  These tweets or blogs are saying what some people have learned this last week.  There are times that volatility spikes up and the ‘easy’ short volatility trade does not work so well.

SPX VIX 2013

What has really caught my attention this past week is not the big move out of VIX, but the lack of move in the February and March VIX futures.   Both closed at 16.20, a heck of a discount to the spot VIX index.  This can be attributed to at least two factors.  First, February expiration is in just over three weeks.  That’s a lot of time until February expiration and unless the stock market experiences another week like this we just may see VIX come back down to the mid-teens.   Also, there has been a pattern of small VIX spikes followed by fairly quick sell offs over the last few months.  I’ve included a chart above that I have been using in presentations lately.  This is the daily closing prices for VIX in 2013 versus the S&P 500.  Note that every ‘volatility event’ or stock market sell off was followed by the S&P 500 rebounding and VIX dropping.  There’s a good chance the VIX futures market is reflecting this pattern and expecting it to repeat between now and February 19th.

VIX

  • switchman

    I’m one of the vix spreaders out there…I get a funny 2011 backwardation feeling…
    If markets tumble on Monday that February is gonna rush to spot by the close. If not, I doubt it loses much even if spot drops.

  • Russell Rhoads

    It is interesting you cite 2011 – I often say the market has about two years of hindsight. The action right now seems to be based on recent memory – if you are right about the equity market and VIX there will have a be a ‘catch up’ run for Feb VIX.

    • switchman

      right, i just as everyone else have no clue on market direction…just saying a long feb future in some fashion looks good right here based on inversion to spot. been trading these since early 08, i do find it hard to see spot vix dropping a lot on monday even on a rally..but been wrong before…good luck guys

      • Russell Rhoads

        Shoot me a quick email – rhoads@cboe.com when you have a moment. I have a question to run past you.