Enis’s Macro Wrap – VIX nose dive to 5 year lows

by Enis August 14, 2012 7:35 am • Commentary

The VIX made a new 5 year low yesterday, registering its lowest reading since June 2007.  CC posted an interesting technical interpretation courtesy of Bill Luby of the VIX and More blog in Quick Hits yesterday:  http://vixandmore.blogspot.com/2012/08/how-can-vix-be-14-and-lower-than-vin.html

However, the real reason the VIX made a new low is not due to any technical explanation.  It’s simply because the demand for options has collapsed along with realized volatility over the past week (5 day realized volatility is practically 0 in SPX; however, 10 day realized volatility is still near the average of the last 3 years, so the volatility market has read a lot into just the past week of price action).  We are also in the slow month of August, and traders don’t want to own options until September.  But even the second-month VIX futures contract (in this case September) is priced at its lowest level all year, and close to the lowest of the past 5 years as well.  So complacency certainly reigns supreme.


  • After another flat close in the SPX, Asia opened in the green, reversing its red Monday. Hong Kong and Korea were the strongest markets, up more than 1%.
  • Europe is up 0.4% on light news.  German and French GDP came in slightly better that expected, while GDP in the periphery was slightly worse.  A 0.2% contraction as a whole.
  • All asset markets are within 0.25% of last night’s close, including the dollar, Treasury bonds, all major commodities, and SPX futures, which are up 0.2% right now.