In less than 12 hours the story will change, but as of the close today the volatility markets seem to be taking recent activity in stride. The S&P 500 was down just a bit less than 1% today and the four volatility indexes that are based on SPX option trading were all higher. Also as would be expected VXST moved up more dramatically than VIX.
The curve chart below shows a change from the ‘normal – all is well here’ shape back to some backwardation between the 9 Day VXST and 30 Day VIX. Last Friday the curve looked a lot like the close today. As the S&P 500 did not follow through to the downside on Monday the curve got back to normal for a bullish market.
Finally, taking a look at the VIX futures market, the shape went from contango to near term backwardation from Monday to today. The August and September futures closed only a tick apart so I’m going to make a judgment call and say from September and farther out contango still reigns.
The sustained higher volatility index levels seem to be a function of the fact that the stock market has not repeated the pattern of quickly rewarding any buyers on weakness this time around. August futures are at a discount which shows there are some mild expectations for high stock prices and lower VIX between now and August VIX settlement two weeks from tomorrow. However, with VIX in the mid-teens there is a lot farther to drop to match this year’s low levels. Seeing a 16 handle on the August VIX future can be taken as VIX traders not believing the S&P 500 will be recovering all of the recent losses in the next couple of weeks.