The SPX index rallied 40 points in the past week. Not surprisingly, the VIX crashed lower in that period. It is notable, though, that the VIX, and most VIX futures, are still higher than they were 2 weeks ago, despite the breakout in stock indices to new highs.
However, compared to a week ago, the VIX curve is lower. Here’s the comparison:
Last week’s snapshot:
[caption id="attachment_23114" align="alignnone" width="626"]
VIX Futures Curve 022713, Courtesy of Bloomberg[/caption]
Today’s snapshot:
[caption id="attachment_23331" align="alignnone" width="625"]
VIX Snapshot 030613, Courtesy of Bloomberg[/caption]
Most noticeable to me is that despite the strong rally, the middle part of the VIX futures curve is close to where it was last week. Given that realized vol has picked up in the SPX (as I mentioned yesterday in my Macro Wrap), traders are starting to anticipate a higher vol environment a few months out even though the market is in risk-on mode right now.
One final point on volatility at highs. In some cases, volatility can actually increase as an asset makes new highs (AAPL in 2012 is a good example). That generally only happens when euphoria causes large swings in emotion. But the important point is that new highs can be emotional on the indices as well. In that sense, implied volatility does not have to go lower as the market goes higher, and I am interested to see if the VIX can hold its lows for the year going forward.