Thursday, October 20, 2011

VIX - Is VIX Sending a Signal?

VIX spot is quoting $34.47, up small with IV30™ down 0.3%. The LIVEVOL® Pro Summary is below.



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This is a quick note on VIX and SPY that I noticed. Let's start simple, a 3 month chart of VIX and SPY is included below (VIX -- red, SPY -- yellow).



I've circled the peaks and troughs of the VIX and the corresponding troughs and peaks in SPY. Basically, SPY down means VIX up -- no great revelation there.

I've noticed in the last few days a persistent VIX in that it seems to go up but not down. Today, while the SPY is up ~0.5%, VIX is still up. That's kinda spooky... But here's something more spooky:

The last time VIX was at this relative level (relative to SPY) in the last three months, SPY was ~4% lower. Here's that same chart illustrating where SPY "should be."



Not spooky enough... How about this:

The last five times VIX was at this level, VIX IV30™ was:

90.86
95.71
91.39
91.51
91.31

Today the vol of vol (IV30™ of VIX) is over 100. So, in English:

1. The VIX has been going up but not down.
2. The SPY is elevated relative to the VIX using the last 3 month as the benchmark.
3. The implied of VIX is elevated relative to the last several times it has seen this spot level.

I've already said this on Twitter, but if Germany isn't just using some brilliant negotiation tactics but in fact is legitimately that pessimistic of a real deal coming out from this weekend's meetings, it feels like the market could be ready to... ya know, not do well... a lot.

This is trade analysis, not a recommendation.

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