VIX Back near 2013 Low as Equities Make New Highs

Equity Indices at New Highs

Equity indices ended the last week at all-time (Dow Jones) or post 2007 (S&P500) highs. Except for a little volatility at the beginning of February and the sharp correction two weeks ago the S&P500 chart looks like an orderly upward sloping straight line. So far equity returns have beaten expectations of most in the first 10 weeks of 2013.

S&P500 since 2013 start

VIX near 2013 Low

After reaching as high as 19  in the last days of February, the VIX (CBOE Volatility Index) gradually returned to where it started from – the 12-13 zone, which has been the lowest in 2013 so far (and the lowest since 2007). VIX closed the week at 12.59, down almost 3 points week on week.

VIX since 2013 start

VXV Below 15

The VXV (3-month version of VIX) has also returned near 2013 lows well below 15.

VXV since 2013 start

VIX Futures Curve Less Steep than Before

Below you can see how the VIX futures curve changed since 19 February (the day of the lowest VIX close in 2013, before it started its surge to 19) – the blue line. The yellow line shows the VIX curve on the day when spot VIX was at its highest (25 February). The green line is the curve at this week’s close. Compared to the February low it is approximately the same on the short end, while the most distant contract months are slightly lower.

VIX futures curve

VXX Losing Fast in 2013

The VIX futures curve has been steep like this for most of 2013 so far and therefore it is no surprise that performance of long VIX ETFs and ETNs suffered. Below you can see a chart of VXX, the most liquid VIX exchange traded product, which tracks the S&P 500 VIX Short-Term Futures Index (long the first two futures months). There was a nice spike from 21 to almost 27, but it was worth nothing if you weren’t fast enough with taking profits.

VXX since 2013 start

VVIX Well above 2013 Lows

Finally, let’s look at the VVIX index, which applies the VIX methodology to VIX options (therefore it is “VIX of VIX”). Unlike the VIX itself, the VVIX has not returned to the lows yet and closed the week at 76.65. In other words, although the VIX is almost lowest it ever has been in 2013, the price you pay for holding VIX options is higher than in February.

VVIX since 2013 start