Low Volatility 2012Q1 Earnings Season

Low Volatility Earnings Season

S&P500 lost all its March gains within mere 5 trading days between 3 and 10 April (down 4.2%, from 1419 to 1359) – the biggest decline so far in 2012. Alcoa earnings, the unofficial start of US earnings season, came after close on 10 April.

Now we are about halfway through the 1Q earnings season and so far, corporate results have been quite positive with a lot of companies having beaten analyst estimates. However, the good results were only enough to stop S&P500 from further declining, but not enough to take it back to the highs. Since 10 April, S&P500 has been moving sideways in a very narrow range between 1358 and 1393, only 2.5%. This is very low realized volatility for an earnings season, although definitely not too low in the context of 2012. Annualized 21-day historical volatility of S&P500 is just above 14% (see chart).

S&P500 Index and its realized volatility

VIX in a New Range: 17-21

While the VIX (CBOE Volatility Index) spend most of the last two March decades in a narrow range between 14 and 17, in the last two weeks it has been moving sideways in another range, now between 17 and 21.
VIX (CBOE Volatility Index)

VIX Futures Curve Stable

VIX futures curve has been virtually unchanged in the last two weeks. The slight relative underpricing of June and July VIX futures that I have written about here (10 April) is now gone.
VIX futures curve