The SPX was around 1500 last Wednesday, compared to 1508 as I type, but VIX spot and VIX futures are all slightly higher today than last week. That’s not a surprise given the pick up in realized volatility since then, as the SPX index has had 3 moves greater than 1% in the past 5 trading days, vs. only one day with a greater than 1% move in all of Jan 2013.
Here is last week’s snapshot:
If anything, short-dated implied volatility in the SPX index seems underpriced to me here, based simply on recent realized volatility. I outlined that case in Monday’s Macro Wrap, and given the overnight and intraday volatility so far this week, I think there is further evidence to make the case now.
Having said all that, I still prefer to express my views with single stock options rather than index options because the realized correlation in the indices are quite low. In other words, single stocks are moving in much more divergent ways on a day-to-day basis, dampening the volatility of the overall stock indices. As long as that persists, it makes more sense to buy single stock options rather than index options.