The VIX settled at the lowest level in months and briefly had a 13 handle today. Does this mean that all is well and the market is full on risk on? No, at least for now, the market is still carrying a heavy hedge. How can we tell, pretty simple...take a look at the spread between April VIX futures and the VIX cash index. It is almost 4 points wide. That is wide enough to drive a Mack Trukc through the spread.
While the SPX closed well off its lows and the VIX well off its highs, I found it interesting that SPX made the much bigger move. In addition it still managed to close below the Jan 20 close (while not toughing the lows from that day). At this point I think as I look at how equities and vol are moving, VIX looks like it really wants to blow out. Maybe not to 40 like in August, but I think we are going to see an intra day high that might be near levels we saw in January, maybe much higher....certainly higher than where we are today.
On Friday the market rallied 50 dollars, and the VIX sold off 2 bucks...into a weekend. Then yesterday the market sold of 1 point and the VIX gave away a little more. Today, the SPX sold of 35 bucks, basically the lows of Friday, and the VIX was up about 2.00 even. What gives? Well I think the answer lies in the futures. While the VIX cash has remained, save .02%, above 20, but managed to fall back into contango relative to the VIX futures and VXV. The VIX futrures have been trading in a backward state out to may the entire rally. Today's did not help.
The one thing that has been stunning about this sell off has been the total lack of volatility as seen in the VIX. The VIX barely touched over 30 on Friday despite the middle of a 60 point sell off and a new low below levels from August. By the end of the day the VIX closed around 27. Today we saw the same thing, the SPX rocketed higher on the open and VIX got killed. Then by days end the entire rally was gone, and in fact the SPX had been down as much at 15 at one point. But take a look at VIX with the market up 14 and the market flat...coming off a huge sell off.