Let go My VIX Call

• Posted by Adam Warner
• on December 15th, 2009

SPY had a roughly 60 cent range all day yesterday, but that overstates the excitement. From about 11:30 AM on the range was only 30 cents. Yes, 30 cents. That’s like less than a rounding error. It’s some early holiday cheer.

We had similar action Friday, and it translates to something like a 10 VIX if it happens 2/3 of the time. So it’s no surprise to see the actual VIX drift on this action, near the 52 week lows of about 20, even given the Waffle Shortage currently gripping America.

What’s impressive is that VIX Futures will hear none of your “realized volatility is in the tank” talk. Jan. Futures closed at about a $5 premium, high even by recent overpricing standards. They just seem to have a price in mind, VIX be damned.

Some of it makes sense. Actual VIX does have slow holiday trading on it’s mind. I mean it’s incredibly non-volatile already, what can we expect over 2 holiday shortened weeks? Remember the futures are just a snapshot of the VIX on January 20th, at which point actual SPX traders will be looking into February. And clearly they expect volatility estimations then to bear no resemblence to the inaction now (maybe someone saw something in their FlashForward).

But we still have to question why such overpayment? Bloomberg I’m sure can come up with a stat that shows that market crashed 5 month’s after all 1 time this happened before. I would counter that it’s probably meaningless. It’s likely a confluence of the calendar and low volatility To The Extreme. Still worth watching though as it has to resolve in some fashion.

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