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.
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.