Friday, December 19, 2008

VIX Drops Below 42; VIX Calls in Play

The range-bound action in equities over the last few weeks has brought us something we have not seen since October 3rd: a VIX below 42.

With the VIX futures for January and February still trading in the 47-48 range, the consensus opinion is that a 42 is not sustainable. In fact, supporting that opinion is the flurry of activity in the January 70 and 75 calls in the past few minutes, as speculators (and perhaps hedgers) jump at the pre-Christmas sale prices on VIX options.

The graphic below summarizes the action in the VIX January options, with almost all of the action in the January 75 calls coming as I type this.

[source: optionsXpress]

7 comments:

Eric said...

Maybe we are entering into an apathetic time here, wouldn't that crush the VIX? And hasn't 45 been a historical top?

Flux said...

Seems like this would be a contrary indicator -- strong expectation of a dramatic rise in volatility. Making bets on strike 75....???

Anonymous said...

With the VIX at the lower end of the BB, do you foresee a reversion to mean, i.e. rise in volatility in near term?

Anonymous said...

Hi, Where do you trade VIX? I use Scottrade and it doesn't allow trading on VIX?

Thanks.

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Bill Luby said...

Eric,

Probably some holiday apathy until the end of the year -- or perhaps up until the Jan 20th inauguration.

Flux,

Normally, I would agree with you, but it seems that most VIX options traders are savvy institutional traders, not your run of the mill retail traders.

Anon 1,

Yes, I expect volatility to rise in the near term, even with the holidays.

Anon 2,

I generally trade the VIX with options specialist brokers such as thinkorswim or optionsXpress. Not all of the general brokerage houses allow VIX options trades.

I see a future post about options brokers coming up...

Cheers,

-Bill

Anonymous said...

Bill / anyone

Have you done an analysis on about how much VIX / VXO drop on average in this part of December.

I see big falls just now - especially relative to what the S&P is actually doing.

I am wondering how much of that % drop in VIX or VXO is seasonal.

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