$VIX Futures Snapshot – Inverse Relationship

by Enis October 25, 2013 11:01 am • Commentary

We discussed the VIX this week in length in our CotD post from Tuesday.  The key takeaway:

With no upside resistance for the SPX index, volatility is liable to increase in both directions.  Regardless, with the VIX in the low teens and realized volatility increasing in the high fliers (see NFLX, FB, BIDU or GRPN today), the risk/reward for long VIX trades looks increasingly attractive. We’ve had alot of success with long VIX strategies this year (most recent here) and we’ll be looking for similar entries if given the opportunity in the near future.

The VIX has been stable even has the SPX inched higher to new highs earlier this week, with VIX futures actually up on the week despite the move higher in SPX spot.

Here is last week’s snapshot:

VIX Futures Snapshot 101813, Courtesy of Bloomberg
VIX Futures Snapshot 101813, Courtesy of Bloomberg

Compare that to today’s snapshot:



As we look at the VIX in the low teens, the index does not look cheap on the measure of close-to-close realized volatility.  But as we mentioned back in this Macro Wrap post in August, the swing moves (like the 100 point SPX move higher we’ve seen in the past 2 weeks) have exhibited significant volatility in both directions in 2013.  As we near the end of the year, option buyers might get a bit more aggressive to buy protection (either as stock replacement on the upside or simple put buying on the downside) and lock in their gains for 2013.