VIX spot is back near the low of 2013, touching the 12 level on Friday. The low of 2013 was 11.05 back in March, and the VIX has bounced higher from around 12 on numerous occasions this year.
More interesting to me recently is that the low implied volatility in the S&P 500 index has coincided with a gradual increase in realized volatility over the last few weeks, even as the index has rallied:
Generally, in 2013, 10 day realized volatility has moved above 30 day implied volatility only on short-term vol spikes. Not once this year as the crossover occurred as a result of implied vol moving below realized volatility.
Though the S&P 500 has a very tight range on quite low volume this morning, hardly the environment indicative of coming volatility, risk/reward is starting to look interesting for long options bets. The FOMC minutes are set to be released on Wednesday afternoon. While Yellen’s commentary last week was comforting, the climate has become complacent as a result.
One caveat – Thanksgiving is next week. That is part of the reason why 1 month implied volatility remains depressed. However, calendar spreads are one potential way to carve out the Thanksgiving week, and play for increased volatility in the first few weeks of December, particularly since we’re starting from a low base. Alternatively, our VIX portfolio protection idea looks interesting as well.