VIX: Seller Beware

By Surly Trader

It is amazing what a new year and abundant investor liquidity can do.  Despite the tax increase that really does nothing material to balance the budget, the markets have sighed a major relief rally early in 2013.  One of the most striking results has been a significant decline in the VIX (see chart below).

On Friday, the VIX hit an intra-day low of 13.64 which is a hair away from the multi-year low of 13.39. This occured despite historic realized 10 day volatility of about 19%, 20 day volatility of 15.4% and 50 day volatility of about 14%.

With the debt ceiling debate coming to the forefront, I would imagine that a decline in the VIX from here is exceedingly unrealistic.


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Stephen

    Mirrors my thought exactly.
    Indeed significant short term moves that almost invraibly event driven rarely become sustainable without undoing the prior move. Hardly surprising because hardly any have anything to do with fundamentals.Being events they tend to owe much more to sentiment,and we know how that works.

  • http://pragcap Michael Schofield

    My thoughts too, yet the s&p technicals look strong. My best guess is that equities aren’t done yet, but it is time to look for entry into the vix. Fasten your seatbelts.

  • Alberto

    Selling protection has been one of the best business for many. It was on the shoulders of 1) the perceived Bernanke put in action, 2) a federal budget running well over 1 trillion, 3) energy costs on the downside because of cheap gas which drag coal and electricy along, 4) China not hard landing 5) Europe not melting 6) EM markets growing less but still growing 7) no Iran bombing and no middle east implosion/explosion
    Will all these (1-7) continue to go well ? If YES the VIX can stay around the current value but to go even lower something really wonderfull must happen. Otherwise… it will not be a good business anymore and something else must be done by the very same financial entities to fund their revenues. Let me know what and I will speculate a little bit otherwise I’ll spend my money for skiing and good wine.