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VIX rises with equity market on “switch-day”

September 12, 2011, 5:18 pm By michael mccarty Leave a Comment

On this month’s ”switch-day” the CBOE Volatility Index® (VIX®), the SPX option derived measure of implied volatility, lifted 0.07 today to close at 38.59 near the lows for the day having risen as high as 43.18 earlier in the day. In anticipation of next week’s expiration of September VIX futures and options, the (too near to expiration( September SPX options were dropped from the calculation this morning with November SPX options joining October in the calculation. The switch in the index likely explains why the popular measure of fear rose despite an impress turnaround in the equity markets where the S&P 500 (SPX) rallied from a low of 1136.07 to close at $1162.27 a $8.04 or 0.69% gain.

The front month September VIX future fell .25 to settle at 38.30 while longer dated futures rose. At the CFE today, 63,642 VIX futures changed hands, while at the CBOE 485,765 VIX option contracts traded, 1.01x the typical daily volume for the product. Calls made up 66.0% of the volume. The CFE today announced that effective September 26,2011 trading of VIX Futures extend the beginning of trading to 7:00am Central Time.

data sources: CFE, Trade-Alert LLC, Yahoo Finance and Differential Research LLC

The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

Copyright secured by Digiprove © 2011 Michael Mccarty

    

Filed Under: Daily Recap

VIX 20-day Realized Volatility sets record during recent “Volatility Storm”

September 12, 2011, 1:28 pm By michael mccarty Leave a Comment

While implied volatility for the US Equity Market, as measured by the CBOE Volatility Index® (VIX®), failed to approach the levels reached during the financial crisis, 20-day realized volatility for the VIX last week surpassed levels witnessed during the financial crisis reaching the highest level since 1990 when data for the “new” VIX is first available.

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With the VIX rising to 48.00 during the period, 20-day realized volatility for the period ending September 29, 2012 set a new record of 277% surpassing both the financial crisis high of 240% set October 24, 2008 and the record 262% set during the “Flash-Crash” May 24, 2010.

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Accepting that our data set is limited and that the nature of trading volatility has matured as products have been introduced and developed, the relationship between VIX Index volatility and the level of the VIX continues to change; a consideration not to be ignored by VIX options traders.

While the belief that both the VIX Index and VIX Index volatility are positively correlated, would seem to be confirmed visually, the magnitude of the change in realized VIX volatility does not seem to be dependent on the level of the VIX during the period or the associated peak in the VIX.

Interestingly, the record for the VIX since 1990 of 80.86 actually occurred several days after 20-day realized volatility for the VIX peaked. Of course there is no guarantee that we have attained the peak for either measure in this current volatility storm.