VIX Higher (But Lower than Realized Volatility) and Curve Flatter with New High in Equities
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.