$VIX Futures Snapshot – Another False Alarm?

by Enis September 30, 2013 11:13 am • Commentary

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:

VIX daily, Courtesy of Bloomberg
VIX daily, Courtesy of Bloomberg

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:

VIX Futures Snapshot 093013, Courtesy of Bloomberg
VIX Futures Snapshot 093013, Courtesy of Bloomberg

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:

SPX 10 day realized volatility, Courtesy of Bloomberg
SPX 10 day realized volatility, Courtesy of Bloomberg

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.