In the last month, the SPX bounced around between 1425 and 1470 several times. What was interesting about VIX (and I mentioned it several times in this piece) was that it would not move much higher even as SPX neared the 1425 support level.
That changed on Friday. The SPX was down 1.7% on Friday, and VIX spiked higher, even before we broke support yesterday. Yesterday’s break of support, though, was the real catalyst sending VIX spot to 2 month highs.
Here was the VIX futures curve last week, on Oct 18th, when the SPX closed at 1457:
Compare that to today, with SPX around 1410:
Nov, Dec, and Jan13 VIX futures are all up 1-2 points in that period, but what’s surprising is that June13 futures are practically unchanged. This is what I wrote in my Snapshot:
The back end of the VIX futures is what continues to attract my attention. The June13 VIX futures has moved down about 2 points in the last 2 weeks, which is an almost 10% move for something that does not expire for 9 months…Traders are starting to correct for their overestimation of volatility in 2012 by selling volatility out ot the middle of 2013. Of course, the current complacent environment might be exactly the wrong time to adjust those expectations.
That did in fact prove to be the case. But traders who sold the back end VIX futures last week have not actually lost any money, since they’re flat. Until you see the back end of the futures term structure start to price in some panic, I think the move higher in the VIX still has legs.