Steven Place has a video post up this morning, Options Market Does Not Care About Selloff, in which he discusses how the implied volatility in various asset class volatility indices (VIX, GVZ, EVZ) are showing a very muted reaction to today’s selloff in stocks.
As noted here previously, the VIX generally moves about -4x in percentage terms the direction of the SPX. Mondays generally see a slightly larger move in the VIX relative to the SPX (usually an incremental 0.5% - 1.0% increase over Friday’s close) due to calendar reversion or the weekend effect, so today one would expect to see the VIX moving at least 4x in the opposite direction of the SPX.
In fact, as I type this the SPX is down about 1.9% on the day and the VIX is up only 3.9% -- so the VIX is about half as sensitive to changes in the SPX that is typical for a Monday trading session.
This is not to say that investors are oblivious to the risk that remain in Europe (and elsewhere) or that today’s move is just a head fake by stocks, but it does mean that the consensus expectations for immediate downside risk are quite low.
Santa may pay a visit after all, assuming he manages to survive all the austerity measures that I am certain his government has saddled him with…
- VIX Reflecting Skepticism About Rally
- VIX Suggests Investors Don’t Believe Rally Is Sustainable
- Fearogram Maps Recent VIX Complacency
- How Fearful Were We Last Week?
- SPX-VIX Daily Correlation
- Performance Implications of VIX and SPX Divergences
- More Thoughts and Numbers on the SPX-VIX Correlation
- High Positive Correlation Between VIX and SPX Often Signals Market Weakness
- The Calendar Effect and Time Decay