Today was the first time the global markets reacted to a crisis since VIX futures trading hours were extended to opening at 2:00 am Chicago time. For those of you living under a rock, the crisis I speak of is the developing situation in Ukraine where Russian forces have taken up residence. Gold was higher, Oil was higher, and VIX futures traded up as well. The higher prices for VIX futures came hours before the equity market opened in the US. In addition to higher prices there was strong volume with about 37,000 contracts trading between 2:00 am and the US equity market opening at 8:30 am.
The S&P 500 Index is a global index comprised of the many of the largest multinational companies in the world, despite being an index comprised of US companies, it is definitely a barometer of global business activity. Since VIX is calculated using S&P 500 Index (SPX) option prices it is taking on the role as a global risk index or to use the popular term a global “fear” index. Now that VIX futures trading is occurring during European market hours, VIX futures pricing can be used to gauge (and trade) global equity market risk even when the US stock market is not open. Today’s activity further affirms the leading role that VIX has taken on, not just as a measure of perceived market risk in the US, but as a global equity risk indicator.