Over the last month, while underlying volatility has been quite elevated, the SPX index has hardly moved in that time. Today’s market rally has VIX spot back down near the lows of the past month (near 15), where it has bounced on 2 prior occasions:
We executed our VIX fly today with the thought that VIX spot will likely find support around the 15 level given that realized volatility in the last month has been more elevated than at any point in 2013.
We can see the large move lower in VIX Futures in the past week, as the market is higher and the heavy economic calendar is now out of the way.
Here is last week’s snapshot from June 26th:
Compare that to today’s snapshot:
July VIX futures are down by almost 2.5 points, while Aug-Oct are down by 1-2 points. Even Feb14 VIX Futures are down by more than 0.5 point, quite a move for the back end of the Futures curve. Meanwhile, implied volatility for other asset classes and geographies remains well above their 52 week averages. Here is the Vol Around the World Snapshot:
Realized volatility has remained higher for markets outside of U.S. equities. The SPX index has moved less than 1% for the last 8 sessions, which is the main reason for the disproportionate drop in the VIX relative to other assets. The market’s reaction ahead of and after the FOMC minutes on Wednesday will give a good indication as to whether the jitters are gone for good, or simply in a holiday week lull.