Stocks quoted in this article:
The market feels a little more volatile in the sense that it's weak pretty much every morning these days. And 10-day realized volatility (RV) has in fact nearly doubled in the past week, so there's that.
But the reality is, we're still mired in a whole lot of nothing. That "big" lift in RV is off 16-year lows, and very misleading when expressed in percentage terms. Ten-day RV is all the way up to 6.2, which translates to roughly a 0.4% range on a typical day. That's still incredibly low. And it's not like the directional move over time looks any less pathetic.
Since Aug. 21, the SPDR S&P 500 ETF (SPY) has ticked as low as 198.56 (on Friday, actually), and as high as 201.58. If you're scoring at home, that's a range of about 1.5% over the course of 15 trading days.
That's just unreal.
As always, that next volatility spike is right around the corner. The CBOE Volatility Index (VIX - 13.31) closed at 11.78 on Aug. 20, so it's up around 13% amidst as non-volatile a three-week stretch as you'll ever see. In all fairness, that Aug. 20 reading was a little understated, thanks to the approach of Labor Day.
On the other hand, holidays don't have much impact on the VIX term structure. And here's how it looks now vs. Aug. 14, when the VIX was right where it is now.
It crept up modestly.
And VIX order flow? Same as it ever was. This, from Options Action on Friday:
Big VIX trade went out-- someone bought 50K October 22-calls for $0.425, and then paid $0.45 for another 70K.
To which I responded:
It's amazing how often that sort of trade goes up...and how infrequently it ever looks good in hindsight.
What I meant was that any time you hear about a big trade in VIX, it's the exact same general concept -- some unknown entity buys a ton of cheap dollar calls. And it works well about as often as a broken clock tells you the correct time.
Now, I assume it's almost always a general hedge against large equity or bond exposure, and it doesn't particularly matter that it rarely works. Because otherwise, all these cheap VIX calls add up to some serious money down the drain over the years, which would strongly argue against the fact that someone keeps buying them.
Want more evidence that fear of future declines persists, this time with the CBOE Nasdaq-100 Volatility Index (VXN)? Steven Place has you covered.
I know I'm a complete broken record on this topic, but I'll say it one more time: So long as every pause and slight dip in the market is met with a spike in demand for protection, that protection is likely to prove unneeded.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.