With the SPX index continuing to inch higher on low volatility, the VIX futures curve (not just VIX spot) has hit new lows for the year. 10 day realized volatility in the SPX is now back down to 5 for the 3rd time in 2013. That’s the definition of a low volatility environment.
Perhaps it should come as no surprise that the VIX is trading at these levels given that the market is on track to close higher for its 5th straight month if the SPX closes 1514 in March. That hasn’t happened since the creeper rally in late 2006-early 2007. That is also the last time the VIX was around 12 for an extended period. On to the snapshots.
Last week’s snapshot:[caption id="attachment_23331" align="alignnone" width="625"] VIX Snapshot 030613, Courtesy of Bloomberg[/caption]
Today’s Snapshot:[caption id="attachment_23639" align="alignnone" width="627"] VIX Futures Snapshot 031313, Courtesy of Bloomberg[/caption]
VIX spot and March and April VIX futures have declined 0.75-1.5 points, nothing out of the ordinary given that the SPX is up 1% in the past week on low volatility. The real surprise has been how well the back end has held up despite the low volatility. Jul to Nov VIX futures are essentially unchanged in the past week, as VIX traders are not willing to take risk out farther along the curve.
Meanwhile, the bulk of open interest has been moved to April ahead of Mar VIX futures expiry next Wednesday. One last point – VIX spot at 12 has room to fall if the market stays quiet, but I would argue that we are unlikely to see a single digit VIX anytime in the spring given that prior single digit VIX readings over the last 20 years almost all occurred in December or January, mostly around the holiday season.