There are countless market/trader sayings that get bandied about depending on the macro environment (and perhaps your position). For example, who hasn’t heard?

  • Trying to catch a falling knife
  • The trend is your friend
  • Dead-cat bounce
  • Picking up pennies (used to be 1/8ths) in front of a steamroller

In the options world, one truism that was likely overheard on trading desks yesterday: “volatility takes the stairs down and the elevator up”.

Of late, there’s been a dearth of realized volatility in the broad based U.S. Indexes. From the middle of July through August 9th, the SPX never closed up/down more than 3/10ths of 1 percent day over day. That’s 0.03%! With an SPX around 2470 – that means there was not a single daily closing move over 7.41 points. During that time frame the lowest close was 2470 and the highest close was 2481.

In the middle of the recent range-bound trade, VIX made a new all-time intraday low. On July 26th, VIX hit 8.84 which exceeded the previous intraday low (12/27/1993) by a few pennies (8.89). VIX stair stepped from a high of 10.12 on 7/14 down to the 8.84 levels on 7/26. As tensions on the Korean Peninsula ratcheted higher this week, VIX has responded. Monday’s VIX lows were 9.52 verses yesterday's high of 16.17. VIX settled at 16.04, which was up 44% on the session.

The SPX made another new all-time high on Monday at 2490.87 and settled yesterday at 2438.21. The SPX is now 2% below its peak and VIX is 80% higher than the July 26th lows. VIX is up 67% from this Monday’s lows.

There’s a reason these sayings exist.

Volatility takes the stairs down and elevator up.

The VIX term structure, which is the relationship between futures with different expiries/tenor, is now backwardated. Typically (roughly 85% of the time), VIX term structure is in contango where futures with a greater duration are trading at a premium to those with a shorter duration.

  • Cash VIX moved up 4.93 to 16.04 on the session.
  • August VIX futures were up 3.83 to 15.55 (expiration 8/16)
  • September VIX futures were up 2.13 to 15.20
  • October VIX futures were up 1.43 to 15.20

VIX futures at CBOE Futures Exchange (CFE) reported a record breaking volume day. 939,297 contracts traded on August 10th. The previous high volume day for VIX futures was 10/15/2014.

Average daily volume for VIX futures is 283,342.

In related news, option volume in VIX has remained robust despite a lack of realized market volatility. However, describing yesterday's options activity as “robust” would be a monumental understatement. VIX options set an all-time record for volume. 

  • Total VIX option volume was 2,562,477
  • Total VIX call volume was 1,984,698
  • Total VIX put volume was 566,779
  • Ratio of 3.4 calls for every 1 put
  • Average daily VIX option volume is around 700,000 with 2.9 calls traded for every 1 put
30 minutes before the Friday open, cash VIX is down 0.49 to 15.56.
S&P futures have traded in a 12 point range from down 7.50 to up 4.50. The futures are trading up 2.25 just before 8 am Chicago time.