IV and HV for SPY and VIX

Earlier today, Adam at Daily Options Report posted a one year chart of the implied and historical volatility for SPY (commonly known as SPDRs or Spiders, the original ETF used to track the S&P 500 index) to help drive home the point that for all but one of the past eight and a half months, the SPY options have been overpriced relative to the volatility of the underlying. Adam’s bottom line is that the gap between the current IV and historical IV for SPY is at least as wide as it has been during the past year.

Since I have not done so before, I thought it might be instructive to juxtapose (my favorite word, but I digress…) the identical VIX chart to see if any related conclusions might jump off of the page.

In looking at the charts below, at least four different conclusions immediately present themselves to my eye:

• unlike SPY, the VIX IV has, on average, tracked reasonably close to historical volatility over the course of the past year; with the exception of brief spikes, only in June-July and September-October (in the pre-2/27 world) were there significant enduring discrepancies
  
  
• the current VIX IV and HV are almost identical, in sharp contrast to the wide spread in the SPDRs
  
  
• since mid-April the SPY IV has risen noticeably, while the VIX IV has continued to drop
  
  
• partly as a consequence of the above, while the SPY IV is close to the middle of its one year range, the VIX IV is at the bottom of the range, approaching a one year low

I am not sure what to make of these discrepancies at the moment, but I thought I would pass along my observations and invite reader contemplation and comment. In thinking about the VIX vs. the SPY, keep in mind that VIX options are based off of futures and consequently have a slightly different time horizon than SPY options.