All four of the S&P 500 related volatility indexes quoted by CBOE were lower last week. The price action resulted in the usual cries that VIX is too low, but after this first chart I’m going to show where volatility has been lower and not just decades ago, but much more recently.
To get a historical perspective I compared all four volatility indexes to their 2016 lows as well as lowest prices since 2008. The asterisk on the chart for post 2008 lows is there since we only have VXST data going back to 2011. Do note that despite these indexes closing at low levels Friday, they’ve all been lower since we experienced VIX in the 80’s.
Of note on the table below is VVIX unchanged last week. I stated to type, despite VIX going lower, but it could be because of VIX going lower. I say that since low VIX and related futures pricing brings out the volatility buyers who may be trying to pick up some cheap tail risk protection. SKEW had been getting a lot of love lately as it held the 140 level for a few days. The low level is interesting to me because SKEW is usually at high levels when VIX is low. This is a function of how the SKEW index is calculated as a ratio with the IV of options that are closer to where the market is trading being the denominator which means when VIX is low SKEW often is quoted at higher levels.
The carnage continues for VXX and UVXY in 2017 while SVXY trudges higher. I do find it funny that short volatility has worked so well in 2017 when there was so much initial fear with respect to the Trump administration.
Outside of equity market volatility, there were some winners last week. The leader on the upside was VXEFA which is based on EFA ETF option pricing. The best description of the EFA Index is that it represents all developed equity markets outside North America. Oil volatility also crept up as did BPVIX which remains high relative to historical levels.
Early Friday UVXY was at 24.55 when at least one trader decided to take a short term bearish bet on the double leveraged VIX related ETF. The purchased 1000 of the UVXY Feb 3rd 24 Puts for 0.92 and sold 1000 UVXY Feb 3rd 22 Puts for 0.15 resulting in a net cost of 0.77. As seen below, the best case scenario is if UVXY is at 22.00 or lower this coming Friday. It appears that this trade is off to a good start since UVXY closed at 23.83 on Friday or 0.72 lower than where the fund was when the trade was executed.