Wednesday, June 20, 2007

VIX Implied Volatility at a 52 Week Low

There is always a risk of trying to cram too much information into one graphic, but with the image to the right, I figured it was worth a try.

The chart, which comes courtesy of optionsXpress, depicts implied and historical volatility in VIX options over the past year, in addition to the VIX price, which is part of the reason why it is messier than the (more elegant and readable) iVolatility VIX options chart that shows only implied and historical volatility.

The reason I bother mentioning any of this is that VIX call options closed yesterday with their lowest implied volatility reading of the past 52 weeks. So if you think the market is getting toppy, but you are reluctant to go long the VIX because it is still a fair distance from single digits, consider that the volatility premium for VIX calls is as cheap as it has been in a long time.

3 comments:

I.L. said...

Nice call. It seems like around 12.5 is the new floor for the VIX.
I.L. (musingsofatrader)

newtovix said...

hello, i have a question. Why were the august 10 vix calls closing at under 10 when the vix itself closed at 24. Wouldn't they be worth at least 14 ?
thanks

Bill Luby said...

newtovix,

The reason the VIX Aug 10 calls closed at 9.60 yesterday while the VIX closed at 24.17 is that VIX options are based on the expected price of the VIX at expiration, which is still 24 days out. A good way to get a better sense of this is to look at the futures; the August VIX futures settled at 20.07 yesterday.

I hope this helps. If you want more information, you might want to start with "VIX Futures: The One Picture to Remember".

Cheers,

-Bill

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