S&P500 and Dow Jones above Round Number Levels
After four bullish days in a row both S&P500 and the Dow have now closed above the round number levels of 1600 and 15000, respectively. The Dow was struggling a bit on Monday (15000 seems to be a bigger thing that 1600), but rallied above the level decisively yesterday. So now we have both the indices at all-time highs with the earnings season (strong on the bottom line and rather questionable on the top line) about to end. The macro calendar is much lighter this week compared to the previous one.
VIX Low, But Not That Low
The VIX has been between 12.50 and 13.20 during the last 3 trading days, after having fallen there from the 14′s last Thursday. It is now lowest since 12 April, but still well above its 2013 lows (11.30 on 14 and 15 March).
Some people may be surprised that the VIX is not making new lows when the equity indices are making new all-time highs. Keep in mind that while the VIX and S&P500 tend to move in opposite directions, it does not mean they are mirror images of one another. Although they are closely related, they in fact measure different things (stock prices vs. option prices). Moreover, while the equity indices are unlimited on the upside (S&P500 can theoretically rise to 2,000, 20,000, or even millions), the VIX is limited on the downside (theoretically by zero and historically somewhere around 9).
VXV near 2013 Lows
The VXV index, the 3-month version of VIX, is now in low 14′s. 14 has been the low on numerous occasions in the last months (ignore the dip on 28 March).
VIX futures curve moved downwards in line with the developments in stocks and spot VIX. The extent of the week-to-week change was almost the same along the whole curve, between 0.40 and 0.60 points.
Although the contango of course remains, the steepness of the curve is rather moderate, especially when you exclude the nearest expiration months. The difference between July (15.75) and November (17.60) is less than 2 points. This may be favourable for those willing to bet on longer term volatility using some of the exchange traded products tracking the S&P 500 VIX Mid-Term Futures Index (that includes the 4th through 7th month), such as VXZ or VIXM.
The front month, which expires in two weeks, has dropped below 14 for the first time since it started trading. It is now at about 1 point premium to the spot.
2-Month Low in VVIX
The VVIX index, which measures implied volatility of VIX options in the same way as the VIX measures implied volatility of S&P500 options, fell below 79, lowest since 12 March. It still remains well above its lows from January and February.
New All-Time High on S&P500
Equities ended April positively, closing at new all-time high on S&P500 and just 25 points short of all-time high on the Dow. Both indices are now just below (minor) psychological levels of 1,600 and 15,000. One third of 2013 is behind us and it was excellent for bulls, as all four months were positive and, more importantly, the deepest correction was only 3.25% (in the 5 trading days from 11 to 18 April; assuming closing S&P500 values only).
VIX in Narrow Range in the 13′s
In spite of the new highs in equities, the VIX is actually more than 2 points higher than its 2013 low (lowest 2013 VIX close was 11.30 on 14 and 15 March) and also higher than the low it made shortly after the previous S&P500 all-time high (VIX close 12.06 on 12 April).
In the last 6 trading days the VIX was moving in a very narrow range, with all 6 daily closing values between 13.48 and 13.71 and intraday range between low 13′s and low 14′s (except the spike to 14.85 on the first day due to the AP fake tweet).
Spot VIX below Realized Volatility
However high the current VIX level may seem when compared to previous VIX lows, it is actually lower than the realized volatility of S&P500 (14.41%) measured over the last 21 trading days (approximately the same length as the 30 calendar days period used on the VIX). Historically, a premium of implied volatility (and the VIX) over realized volatility has been much more common and we can now expect either a decline in realized volatility or an increase in the VIX.
VIX Futures Curve Flattened
Compared to the 12 April VIX low (the day after the previous S&P500 all-time high), the VIX futures curve is now flatter, with near term futures 0.10-0.30 higher, August about unchanged, and the long end lower by up to half point. For comparison I have also included the curve from 18 April (yellow), the day of the recent VIX high and S&P500 low.
VVIX in the 80′s
The VVIX index, which measures implied volatility of VIX options in the same way as the VIX measures implied volatility of S&P500 options, returned from the high values above 100 back to the 80′s. Like the VIX it is well above its 2013 lows.
Today we saw a small 2013 version of flash crash after AP (Associated Press) Twitter account (@AP) was hacked and displayed the following tweet:
“Breaking: Two Explosions in the White House and Barack Obama is Injured.”
The tweet appeared at 13:07 EDT and was on only for a few minutes. AP quickly stated that the message was fake and that “the President was fine”. You can see more about the (still developing) story on Bloomberg or CNBC.
Below you can find charts of selected markets to see in detail how they were reacting during the minutes after the fake tweet. All charts are 5-second bars, unless stated otherwise.
The Dow Jones Industrial Average lost 146 points (almost 1%) during the 2 minutes from 13:08 to 13:10. Then it quickly recovered:
VIX (updated every 15 seconds):
VIX May 2013 futures:
10-year treasury yield (30-second bars):
Gold June 2013 futures (30-second bars):
WTI crude oil (CL) June 2013 futures (30-second bars):
Twitter has become an important news monitoring tool for an increasing number of market participants (myself included), which apparently brings new challenges for regulators and for the integrity of markets.
The AP Twitter account was suspended after the event.
The final settlement value is 15.46.
Below you can find an overview of what happened over the life of the expired contract.
ES futures recovered and VIX futures were giving back most of their yesterday gains before open. Yesterday equities had been under pressure the whole day, in line with the sharp selloff in gold.
The selloff in equities and spike in VIX accelerated in the last hour of yesterday’s trading on the horrible news from Boston. Spot VIX closed at 17.27, highest since 26 February. The front month April VIX futures, which trade the last day today and expire on Wednesday, increased 3.95 points from 12.75 on Friday to 16.70 at yesterday close. The contract is trading at 14.25 less than an hour before equities open today.
Below you can find the VIX futures curve at yesterday close (yellow) and today (45 minutes before equities open, green):
April 2013 VIX futures: