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Monday, April 15, 2024

VIX Alive!

VIX Alive!

If I could summarize my opinion of how to use the VIX (and volatility in general) in one sentence, it would be as follows. Pay attention when it tells you something unexpected.

The VIX itself yesterday did not act all that odd. It was on the weak side given that the market itself was not that cosmically strong. But between Tuesday’s VIX strength, and the somewhat self-fulfilling prophecy of the skew curve, it’s not shocking.

No, the real message lies in VIX futures, and in turn VXX. Both maintained stubborn strength yesterday as standard measures of volatility declined sharply. The VIX is now near parity with July futures, which in a vacuum is not odd. But think about what that means; the market expects to see VIX levels in the low 30’s out to mid July. That is somewhat noteworthy as we have to remember that a VIX over 30 is pretty elevated. And July is not exactly known for high volatility.

It goes further. September VIX futures are near parity to cash VIX as well. And in fact October is modestly higher….and November modestly higher than October.

We don’t know the path the options market will take between now and then, but we do know the market right here right now anticipates it will see volatility right about here. That will seem cheap if indeed we reprise 2008 this Fall, but far more likely that’s too much Fear imho.

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