The downward march in implied volatility continued over the past week. VIX futures all the way out to Dec 2012 are all below 20, though the term structure of VIX futures is still quite steep (about 1.5 points per month from Oct to Mar 2013).
Here is what the VIX Futures looked like last week, prior to the FOMC announcement:
Here is the VIX Futures snapshot from this morning:
As our VIX expert Dominic Salvino mentioned in the Expert’s Corner post yesterday, you can observe the open interest in the futures gradually shift from the front month contract to the next month contract as the front month contract approaches expiry. Sept futures open interest has declined by about 38,000 contracts in the past week, while Oct open interest has increased by about 33,000 contracts during that same time frame.
Most months have fallen slightly more than 1 point in the past week. The movement in the farther out futures contracts has been an interesting development. Generally, as VIX spot falls, the front month futures contracts fall much more rapidly than the 6 month futures contracts. However, over the past 2 weeks, the 6 month futures contracts have fallen at a rapid pace as well. Part of this is because the VIX futures term structure was quite steep to start September, so traders become more willing to sell farther out months and hold shorter-dated VIX futures as a hedge. Part of the move in the back end is likely also due to a general increase in comfort level among traders of the solidity of the central bankers’ put over the next 6 months.