In August of 2013, the day the VIX of VIX settlement also happend to be the day of the a FOMC announcment that many thought might be when they would announce the beginning of the end of QE in the US. The night before the VIX cash settled 14.91. With little to no movement in the SPX. the VIX opened up much higher and settled to almost EVERYONE's surprize at 16.42. A huge pop. Check out the intra-day range the index had.
There are many people smarter than us calling for a new vol regime. While we are not 100% sold that is the case, we can say with certainty that a VIX with an 11 handle is going to be very difficult to get to in the next few months. Why? Realized volatility. The market is moving again, something it did not do for months on end. Take a look at 10, 20 and 30 day HV relative to SPX implied vol.
We are watching an incredibly orderly sell off of stocks right now. While last Wednesday we saw a huge reaction in the VIX, since then the market has been down somewhat aggressively, certainly on an intra-day basis. However, VIX has moved with a slow orderly basis, essentially not panicking. In addition, it keeps being sold at the end of the day.
If VIX is the 'fear index' (it isn't) then today was actually quite worry free. While the SPX gave away almost 2%, the VIX barely moved rallying only a touch over 2 points and settling below 20. Recall that coming off a weekend the VIX SHOULD be higher by .75-1% anway. What does this spell? Take a look at the chart, when I am watching VIX and SPX I always look for divergence... times where the SPX is low and the VIX is low too.
In Tuesday's webinar Options for Stock Traders I discussed how I can use VIX to spot intraday trends. One of the strongest signals for a reversal is when the market is hitting new lows, but the VIX is failing to hit new highs and/or is actually declining in price. We saw a clear example of that this morning. The chart below shows a tick chart of SPX and VIX on the day.
The OIV which is the VIX of options on WTI is through the roof. It currently in the mid-fifties. To put things in perspective, the last time the VIX itself wasin the 50's was in 2008. So that traders can get a real view of how it is moving I thought I would show a comparison of VIX returns relative to OIV over the last 6 months.
One thing I always like to keep an eye on is how 'high fliers' perform in sell offs. In these most recent sell offs 'loved' names like TSLA, AMZN, GPRO, and AAPL have gotten a bit of a smoosh. One 'loved name' that did exceptionally well in this sell off is FB. While AAPL dipped to 108, and GPRO back to 55, FB stayed somewhat healthy never breaking 74.
I have been saying for a few days that the coorelation between Oil and SPX is kind of dumb and non sensical. Close observation of the coorelation shows that often SPX sells off with Oil, but once Oil stops selling off SPX would rally.
Now take a look at what happened today. The SPX rallied with Oil mid-morning with a high in the SPX over 18 handles. Then, as WTI and USO sat, the SPX dove on Russia fears and maybe the Fed.