VIX spot has perked up in the past few days, as the government shutdown possibility has gained steam. VIX spot was near 3 month highs early this morning, and has held up even as the market has rallied in the first hour and a half:
There’s really only been one major selloff in 2013, in late June, and that saw VIX spot breach 20 for only a brief moment. VIX spot has not remained above 20 for more than a week since mid-2012.
Despite the rapid move higher in the VIX over the last 2 days though, VIX futures are still steeply upward sloping:
October VIX at 16.10 is up 1.4 points in the past 2 days, while Nov VIX at 16.85 is up 0.90 point in the past 2 days. So the curve has flattened a bit, but from a very steep situation to start.
However, even with the move higher in the VIX, it’s worth pointing out once again that close-to-close realized volatility in the SPX remains quite low. In fact, 10 day volatility has not registered above 13.50 for almost 3 months:
Either the SPX index starts to move in line with the VIX’s anticipation of more action in the coming weeks, or the VIX is likely to make a rapid move lower once again, something traders have gotten used to over the past year. The threat of a shut-down and/or a debt ceiling crisis has caused the spot and the futures to drift higher without a ton of realized vol as far as big selloffs. Any light at the end of the tunnel out of DC will see a compression in vol, any further fears, especially on the debt ceiling, will cause realized and implied vol to ramp.