A reader asked why the VIX was down almost 5% with the SPX basically flat.
In addition the possibility of statistical white noise, there are several factors which may be affecting today’s VIX readings relative to the SPX. In no particular order, they include:
- Much of the news cycle uncertainty is gone (earnings season is essentially over, Geithner made his speech about TARP 2.0, the FOMC minutes are out, almost all of the key economic data for February has been released, etc.)
- Most of the recent volatility has been in the banks (KBE) and banks are an increasingly smaller portion of the S&P 500 index (two years ago financials (XLF) were 22% of the SPX, now they are only 10%)
- VIX futures indicate expectations are for a VIX in the low 40s during the second half of the year
- Low volatility leading into options expiration – while the SPX was down 4.6% on Tuesday, in four of the past five days the daily closing change has been no more than +/-1%
- The VIX is significantly higher than the 10, 20, 30 and 50 day historical volatility in the SPX – all of which is currently under 40 (see below)