VXV Has Outperformed VIX Since Elections

What Has Happened Since the Elections

Stocks are falling, but market’s expectations of near term volatility too, unlike longer term volatility, which holds.

Here is how the market looked on Friday’s close (16 November) compared to the close on 6 November (the last close before the election result was known):

  • Equities lower (1360 vs. 1428 on S&P500 = -4.80%)
  • VIX also lower (16.41 vs. 17.58)
  • VXV higher (18.93 vs. 18.24)
  • VIX futures curve steeper

VIX (30 days) now represents roughly the period until the end of the year, while VXV (93 days) the period until mid February.

S&P500

We haven’t seen any strong positive day since the elections on S&P500. The +0.48% on Friday was by far the strongest, followed by the previous Friday (+0.17%).

VIX (CBOE Volatility Index)

Although equities have declined, the VIX has not moved higher and closed below the pre-election level on Friday.

VXV (CBOE S&P 500 3-Month Volatility Index)

The term structure of S&P500 implied volatility remains upward sloping, measured both by the VIX-VXV relationship and VIX futures. Unlike the VIX, VXV index has closed a bit higher on Friday compared to its pre-election close.

VIX, VXV, and VIX/VXV ratio since the elections

VIX/VXV ratio has moved down quite significantly since the elections. It had grown back above 0.90 in the second half of the week as volatility briefly recovered, but lost ground again on Friday.

VIX, VXV, and VIX/VXV ratio since March

However, the recent decline in the VIX/VXV ratio looks totally different when you look at it in a longer term context. It seems like the market has merely reverted to the longer term average level in the ratio, from the pre-election highs.

VIX futures curve

VIX futures returned close to their pre-election prices in the recent days. The futures curve has steepened, especially on the short end, as prices of the near term contracts underperformed the rest of the curve.