VIX Futures Snapshot – No Desire for Protection

by Enis November 28, 2012 1:24 pm • Commentary

The holiday is done and passed, and fiscal cliff headlines are heating up the tape, but the VIX is having none of it, indicating that traders are still not impressed by recent volatility.  With 30 day SPX realized volatility at 15, and tape bombs starting to hit each trading day, I would have expected a pick up in the VIX after Thanksgiving, but look at what has happened to VIX futures in the past week.

Last week’s snapshot:



Compare to today’s snapshot:



VIX futures are down about half a point across the entire term structure, a uniform repricing of volatility lower.  That is despite the end of the holiday, and the fiscal cliff headlines.  Interesting to say the least.

This is what I wrote last week:

The real test for whether there is appetite for options into the end of the year will be Monday and Tuesday of next week.  At that point, there will still be more than 3 weeks left until regular Friday December expiration, with no holidays in between.  Any year end position protection on the part of traders will likely take place next week as a result.

Clearly, we have not seen protection buyers get involved.  As a result, if the market does indeed sell off over the next few weeks, I think it’s more likely that you see panic, as opposed to the gradual selloff we saw in the first half of November.  VIX price action suggests that traders are less hedged (own less downside puts in the SPX) than they’ve been most of this year, and will have to scramble to hedge on negative price action.