Don’t tell anyone, but I call these my “More on…” posts because I can be headline-challenged at times...
Moving right along, thanks to an anonymous poster who reminded me that FutureSource.com has excellent free futures data, including intra-day quotes. Since I last checked out their site, they have considerably expanded the information available on the VIX and the newer volatility futures. For easy reference, I have added a link the FutureSource.com volatility futures quotes in the upper right hand corner of the blog.
Yesterday I posted a CBOE chart of the VIX futures data out through August 2008 that showed VIX futures pricing in increased volatility over the next ten months, with most of that priced in as short-term mean reversion anticipated during the November options/futures expiration cycle.
Expanding on that theme somewhat, today’s chart compares the life of June 2008 VIX futures (VX-M8 CF) to the cash VIX for the past year. While you would expect the cash VIX to be considerably more volatile than a futures contract 8-12 months out (recall the February 26-27 cash vs. futures VIX action) this was not the case during the July through August VIX spike and only began to become apparent by the higher readings that persisted in the June 2008 futures after the cash VIX began to subside. What I find particularly interesting about the current situation is that once the cash VIX dropped below 21.00 and kept dropping all the way down to the 16.08 reading earlier today, the June 2008 futures refused to follow. The two different Y-axes somewhat obscures the absolute numbers involved here, but the key takeaway – that of an increasing divergence over the past month – is hard to miss.
It should come as no surprise that the futures and the VWSI are saying the same thing. Once again, the big questions are how long it will take for the spread between the cash VIX and futures VIX to narrow and whether it will be more of a rising cash VIX or a declining futures VIX that will be responsible for a narrowing spread.