When traders see a wide spread between the VIX and Front month futures they often get confused or even worried. When in fact the opposite is usually true. Last month with 8 days to go to VIX expiration the VIX closed at 13.19, the April VIX future closed 13.60. A mere .50 premium to the cash. The VIX future ended up settling at 15.64. The month before that the VIX closed 11.56 (it’s lowest since 2006) the March VIX futures closed 12.95 on their way to a settle near 12.50. Today the curve looks as such:
While we could sit and debate by how much the VIX is overpriced, and whether it should be trading below 10 (maybe it should), one thing we can't debate is where forward values are pricing VIX movement. Forward values, represented in the futures, are the smart money's guess as to where volatility is heading. The answer is, at a minimum, nowhere, and could be down. On a day when the VIX managed to eke out a small gain, take a look at what the VIX futures curve did?
One of the things we focus on in our option mentoring is understanding VIX. We teach our option mentoring students to watch the relationship of VIX cash and VIX futures, as they can get out of whack. Well, let me tell you, they are WAY out of whack right now. A great resource to watch the VIX futures is VIX Central. On the site, Eli not only has the current VIX curve, but the curves of every date going back to 2008. Here is the curve from today:
My kids just got some mice for pets. This is the entry level for us in pet world. Take care of the mice and you might get a dog. The problem with the mice is they run on this little wheel for what seems like 20 hours a day. Squeak, Squeak goes the wheel morning, noon and night. It must be the penance for me doing the Option Insider Radio when Longo tells me to de-squeak my chair since it ruins the mellifluous sounds of this voice. I digress here, but things lately are on some kind of daisy wheel with no real breakout one way or the other. Let’s see how the market prices that.
Since the listing of weekly options on equities, this blog has lamented the inefficiencies of the current system of trading weekly options. We have argued that it made little to no sense to list an option that has 8 days of life to it; especial when 2 of which are the weekend. The set up has led to spreads that are too wide, inconsistent option decay, and strange movements in weekly options. Well all of that looks like it is about to change. Under pressure from the CME, the CBOE officially changed how it is going to list SPX Weekly options.
We will be having the second free webinar in our using the VIX to trade series. Go to our EVENTS page to register. Also, make sure to read the Option Pit Challenge below:
As I was looking at the VIX trading relative to the SPX, I was struck by a few things:
1. While the VIX really threatened to break 20, it never did. The VIX rallied toward the end of the day, which shows there are some buyers of insurance that are willing to step in and buy insurance with the VIX at 20.00