In last week’s snapshot, we saw a total capitulation in the vol market, as all VIX futures terms got annihilated. The VIX market has stabilized in the last week, even as the SPX has continued to inch slowly higher, up almost 1% since last Wednesday and making new highs.
But protection buyers have started sniffing around, and the VIX is actually higher today than it was one week ago.
Here is last week’s snapshot:
Compare that to today:
While spot VIX and Feb VIX are both higher, you are seeing the back end continuing to move a bit lower week-over-week. I expect that to be a theme for the first half of this year, given that the difference between 1 month and 6 month VIX is still 5 points. That’s been a profitable carry trade for more than a year now, but market participants are smarting up to it.
As I laid out yesterday, I am watching VIX spot closely since it is at such low levels. Until VIX gets above 15-16, I expect all pullbacks in this market to be relatively brief, as insurance against such a pullback remains cheap.