I mentioned on QuickHits yesterday morning that VIX options had their most actively traded day of 2012 on Tuesday this week, trading more contracts than any single day since Aug 2011. A lot of that flow was focused on rolling long VIX options in Oct out to Nov and Dec, potentially anticipating more news flow around the U.S. elections and the fiscal cliff negotiations.
Regardless, the low realized volatility of the last week, in spite of the anticipation ahead of the German Constitutional Court announcement as well as the AAPL iPhone event, has slammed the VIX futures curve lower ahead of the FOMC news release today.
Here is where the VIX futures curve stood last Wednesday:
Compare that to today:
I want to draw attention to the moves in the Nov through Jan13 futures expiries. With the FOMC release today as the only significant event remaining before Sept futures expiry, the collapse of Sept VIX futures toward spot VIX around 16 is understandable, especially with the low realized volatility of the past few days. But Nov, Dec, and Jan13 VIX futures are down 2.5 points in the past week! And that’s before the FOMC announcement. Clearly, the market has priced in QE3 as close to a given, and expects a low volatility environment for the balance of the year, elections or no elections, fiscal cliff or no fiscal cliff, earnings growth or no earnings growth.
Even Feb13 through May13 VIX futures are down around 2 points in the past week. Clearly, volatility markets are expecting calmer seas ahead, satisfied with the central bank medicine for now.