Crude Oil Volatility Slides with Crude Prices

Based on the large number of Google searches that have recently been landing on the blog, there is considerable interest in the CBOE’s new “Oil VIX” or crude oil volatility index (ticker OVX), which was launched exactly four weeks ago today.

While it is still too early to pluck much in the way of useful conclusions from the OVX, I have included a chart of the new volatility index below. So far what may surprise most newcomers to crude oil volatility is that the OVX has fallen in concert with crude oil prices (as measured by the USO crude oil ETF). My analysis of USO options suggests that crude oil implied volatility and the price of the underlying are likely to be largely uncorrelated going forward, which is in sharp contrast to the strong negative correlation between equities and their corresponding volatility indices, such as the VIX, the VXN, and the RVX.