From the Top

Is a Short-Term Volatility Peak Close at Hand?

Examining the evidence for a potential VIX top

by 10/7/2013 2:30 PM
Stocks quoted in this article:

Thirty-day implied volatility (IV) on the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) is in the 80 area (79.38), site of a number of VXX IV peaks (see table and VXX IV chart below). The CBOE Volatility Index (VIX - 18.56) has been unable so far to take out 18.78, which represents 1.5 times its Sept. 20 low of 12.52 -- either today or last Thursday. Per the final chart below, 18.78 was surpassed only briefly this morning.

Anecdotally, looking at roughly equal out-of-the-money options expiring on Oct. 11 -- with VXX at $15.83, the 17 call is offered at $0.51 and the 14.50 put is offered at $0.07. Trade-Alert has 10/11 17-strike call IV at 104.7% (+13.4%) and 14.50 put IV at 68.9% (+7.7%).

There is a potential concern for actively shorting VXX here: VIX call volume reached climactic levels on Thursday, arriving at 848,000 contracts -- the second-highest since July 1. However, VIX call volume so far today is fairly light at 222,000 contracts.

 VXX Implied Volatility Term Structure

VXX 30-Day At-the-Money Implied Volatility
VIX 5-Minute Intraday Chart Since October 2, 2013

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