Is Wall Street Dismissing the Latest VIX Pop?

Comparing the latest VIX futures term structure to others in 2015

Adam Warner
Jul 10, 2015 at 9:09 AM
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So we have plenty of signs of panic, not the least of which is the recent spike in large-range days and "key" reversals. But hey, there's one spot that doesn't look terribly worried -- and that spot is, oddly enough, CBOE Volatility Index (VIX) futures.

The term structure, in fact, looks relatively flat:

150710Warner1

The futures actually "predict" a very modest downtick in VIX in the nearer months. But that's kind of a misleading way to look at it. VIX futures ALWAYS expect to see VIX in the high teens. Now that VIX sits in range, it's more like the futures were "right" and the pesky VIX has just sat incorrectly low for all these weeks/months/years. 

Or maybe not. The point isn't really that VIX futures predict anything, because if they do, they get it right about as often as a broken clock gets the time right. Rather, it's a hedging/bear speculation vehicle and like all tools that protect against/bet on some downside, it overprices the likelihood of a downside move. So the question is more of degrees. 

So, how do we compare now to other term structures of 2015? And that's where we don't see a spike in Fear. 

Here's a few VIX term-structure snapshots from this week vs. a couple other times in 2015 when we saw VIX in this high-teen range:

150710Warner2

The slopes all look very similar, but we're at considerably lower levels all across the curve than we were on Feb. 10. And I guess I have blinders on, because I can't remember what got us so fraught with VIX love back then, while it feels like the current worries now represent the biggest Fear Wave since last fall.

Now, mind you, this is just futures in a relative yawn. VIX calls are exploding both in absolute volume and relative volume. But hey, it's a sign of not taking this VIX pop particularly seriously, so there's that.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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