This weekend I felt like Ed Rooney. Not Ed Rooney after Ferris Bueller’s sister kicks him in the face 12 times, Ed Rooney when he kept repeating nine times to Ferris’s mom, however my number was 38. I decided to take a look at what the volatility markets did each day the S&P 500 made a new high in 2014. I was genuinely surprised to see 38 record highs for the S&P 500 this year.
I then took a look at VXST, VIX, and the term structure as created when using the VXST – VIX – VXV – VXMT closing curve. Two previous blogs from this weekend talk about VXST and the curve. In this space I take a look at VIX which has an average closing level of 12.15 when the S&P 500 makes a new high, Friday VIX closed at 13.12 or almost a point above that average. All the closing VIX prices for each day when the S&P 500 set a record appear in the graph below.
What is significant is how the premiums are higher despite our most recent rebound to new highs. It could be a function of the most recent market set back being more dramatic or it could be an indication that the market is more nervous when looking forward. The lack of QE around as a safety net could be a contributor as well.
Looking at the futures market I see a bit more nervousness as well. November at a premium of 1.68 is a bit more than the normal front month premium in 2014. It just could be the carry traders have decided to call it a year or be a little more cautions as the year comes to an end.