What a day VIX had last week. We got a 32% plus move in VIX and the second highest VIX futures volume ever. And then we returned to the new normal of VIX being a pre-teen. When VIX moves to the upper teens and stays there it is going to be a rude awakening for those that do not realize VIX can (and will again…someday) stay at elevate levels. For now the standard seems to be any move higher is followed by a quick move lower.
July VIX futures and options expired on the open Wednesday with settlement coming in at the lowest level since February 2007 when settlement was 9.95. July VIX settlement was 11.03. I do want to use the February 2007 settlement as a history lesson. Six months later August 2007 VIX futures and options settlement was 25.05. This after a 9.95 was the settlement value just six months earlier. I may be doing a Chicken Little dance as I throw these things out there, but I really do want traders to realize that the VIX environment can change very very quickly.
I’ve probably beaten the phrase that the week over week price changes for VIX do not tell the whole story of last week, but they don’t. August futures closing at less than a point premium to VIX on Friday with over a month to August settlement (8/20) may be the most complacent thing I have witnessed in the volatility markets. Note that too much complacency is considered bearish for stock prices by many market pundits.
Finally, Steven Sears gave a lot of attention to VIX in Barron’s this weekend (actually his whole column). He noted that there were buyers of a wide variety of August VIX calls this past week and even some traders looking out as far as October for tail risk protection (or benefit). So the futures say complacent, but the traders are still focusing on out of the money VIX calls.