Enis’s Macro Wrap – VIX vs. Realized Volatility Ratio

by Enis November 2, 2012 7:29 am • Commentary

VIX spot fell almost 2 points yesterday, with the entire VIX futures curve down more than 1 point.  That’s a huge move for VIX futures.  Especially with payrolls today, and elections on Tuesday.  Most interesting though, is that VIX spot is finally starting to look cheap vs. SPX realized volatility, which has not been the case for the past 3 months.  Here is the chart of 10 day realized volatility in the SPX index:



10 day realized volatility has been below 16 since the beginning of August.  Contrast that chart with a chart of VIX spot over the past 6 months:



As you can see, in the last 3 months, VIX spot has basically moved between 14 and 18.  So in that entire period, VIX spot has been above 10 day realized volatility in SPX.  In other words, options traders consistently anticipated higher volatility than what actually came to pass.  Contrast that with the May to July period, when 10 day realized volatility did trade above VIX spot at times.

After yesterday’s collapse in the VIX, we are now at a point where 10 day realized volatility is almost in line with VIX spot.  If realized volatility stays elevated going forward, then the 15-16 level in the VIX is going to look cheap in retrospect.

Markets overnight:

  • Asia gapped open higher in most markets after the strong action in the Europe and the U.S., and did not move much from there.
  • Europe has traded in a very tight range around unchanged.  SPX futures the same, as traders wait for the payrolls data at 8:30 am EDT.
  • The dollar is stronger and commodities are weaker, basically across the board.  EUR / USD sits right at the 50 day moving average.
  • From last night’s earnings:  PCLN is trading about 10% higher, LNKD is trading about 9% higher, SBUX around +8%, AIG -2%, and CHK -2%