The Volatility Index is closing out February with a Whimper

EconMatters's picture

By EconMatters



Volatility Smack down


The VIX futures contract ends trading today, and the March VIX futures contract takes over. The first two months of the year have seen volatility crushed downward in this two month bullish rally in assets as new money came rushing into markets needing to get off to a positive start for the year. 


$13.45 Support area on Monday


On Monday the VIX futures got pushed down to $13.45 on several occasions on the S&P 500 attempts to rally the markets, the lowest level by far since before the financial crisis. There have already been several highly publicized bets placed for March and April VIX contracts to spike via the options market with some bull call spreads. 


More Volatility for March


I do expect more volatility in the VIX futures as we move further away without a correction, but the overall trend in the VIX has been declining for several years in between the spikes, expect more of the same. 


The Goal is to make the money before May


Remember asset managers are going to push assets hard through April options expiration if recent history is our insight into market behavior. 


Unless there is a major Risk Off geopolitical event, major Washington event, i.e., they stand and actually fight on an issue that stalls the government and risk a downgrade, or a HFT inspired Market glitch then new money comes in every month to markets and the bulls will extend this rally as far as they can before the annual summer selloff. 


S&P 500 New Highs before May?


The bulls will probably try to set a new high for the S&P 500 before the selloff, so expect the VIX to get hammered a lot as the S&P 500 rises to new highs. 


VIX Bottoms not Holding


For a while $13.75 was a decent support level, then the $13.65 level provided solid support, and yesterday we busted through that to the $13.45 level, which held several attempts to break it.

I am sure that today that level will be banged several times if equities attempt to establish new highs on Tuesday. Maybe $13.20 is in the cards for Tuesday if the S&P 500 can establish a new 2013 high. 


We have come a long way baby: $13, 12, 11…?


But longer term I envision a breaking of the $13.00 barrier some time in 2013, as the long-term downtrend in volatility is hard to miss, and very reminiscent of the bullish period before the epic collapse in financial markets.


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Hongcha's picture

Sounds like this writer is basically throwing up his hands; stating the market is levitated, should not be here, that the lack of vol is a fostered illusion.

I feel about the same.  I just covered yet another short, flat, and it almost feels like I made money.

Now the Govt. of Japan, at its highest level, is openly touting their equity pump.  They like what it did for the O. 

They are all in the same mix ... don't be fooled by the appearance of Nation.  They all collude.

I just can't bring myself to go long in this environment.  I am not built for it.

Aegelis's picture

Aries: Your recent risk taking pays off in a big way...for the other guy.  Contemplate appreciating the present instead of betting on the future.

TahoeBilly2012's picture

When the Elites start heading to their underground bases it's time to start selling hand over fist!

Jack Sheet's picture

If.... unless.......then........if.....or.....

10mm's picture

Well somebody(a trader)has made a very big bet that somehing very bad will happen within the next 60 days.A options trader has made a 11.25 million dollar bet that the VIX will explode higher very soon.Last week somebody put a spread on the VIX using the April 20 and 25 puts.150,000 contracts for a net of 75$ per contract.One would have to be very confident in their outlook to risk that kind of coin.Dollar kaboom,market dive.

Middle_Finger_Market's picture

March looks like the particular month where the wheels start to properly come off of this train wreck.