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The Chart That Has VIX Traders Most Concerned

Tyler Durden's picture


The relationship between high-yield credit spreads (the 'cost' of protecting the most equity-like of the credit-risky bond spectrum) and VIX (the 'cost' of protecting equities) tend to have a very stable and consistently correlated relationship driven by clear arbitrages between the two asset classes and corporate finance causation. Last July, VIX futures plunged while credit spreads remained less impressed... that ended badly for the penny-in-front-of-the-steamroller crowd who saw VIX spike back to credit's reality. May 2014 - as the chart below shows - is exhibiting the same kind of disconnect and VIX traders and credit market participants are concerned.


What does credit know that VIX doesn't?


Perhaps that everyone and their mum is short VIX futures...


h/t "a very smart Bostonite capital structure arbitrageur"

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Tue, 05/20/2014 - 12:48 | 4777901 pitterrier
pitterrier's picture

Everyone cannot be short VIX futures.  For every seller there is a buyer.  The problem is that the sellers sold too cheap, given the global macro environment and the buyers whomever they are, may not even have a profit motive.

Tue, 05/20/2014 - 12:49 | 4777905 Okienomics
Okienomics's picture

That's an extremly high correlation, great find.  I notice the most recent trend, the VIX got ahead of credit spreads, then it recovered.  Looks like traders got spooked, then calmed down, and are now snoozing on it.  I keep a mini-VIX as a hedge on some long positions, think I'll add to it as a spec play.  We shall see.

Okienomics, ON THE RECORD.

Tue, 05/20/2014 - 12:50 | 4777908 nuclearsquid
nuclearsquid's picture

"tend to have a very stable and consistently correlated relationship driven by clear arbitrages between the two asset classes and corporate finance causation."

Wow - thats some high-fallutin' Jeremy Siegel bullshit economics speak right there.

Tue, 05/20/2014 - 12:49 | 4777912 BobaFett
BobaFett's picture

Today is the day to buy volatility.   this short squeeze is here.

Tue, 05/20/2014 - 12:51 | 4777916 Stoploss
Stoploss's picture

No 52 week today, so a halfer.

Halfer to wait til 3:30 an see whot hoppon.

Tue, 05/20/2014 - 12:53 | 4777917 Eyeroller
Eyeroller's picture

VIX unusually low for all that is happening in the world.

Ukraine situation unstable.

China/Vietnam conflict brewing.

Chinese espionage.

Breaking news of Libyan Embassy on evacuation standby.

And worst of all:  Plossner hints that the taper may be too slow.

(But on a positive note:  Fartman again says a crash is coming, which should indicate a rally.)

Tue, 05/20/2014 - 15:06 | 4778437 rosiescenario
rosiescenario's picture

"Fartman again says a crash is coming,".....yeah, noticed his comment earlier today........BUT, a blind pig finds an acorn once in awhile.....maybe this is his lifetime acorn allotment?

Tue, 05/20/2014 - 12:52 | 4777920 nuclearsquid
nuclearsquid's picture

I think all you are seeing here is the nuances in how the Vix is manipulated vs how the entire credit market is manipulated.... no?


Tue, 05/20/2014 - 13:00 | 4777950 hugovanderbubble
hugovanderbubble's picture

This kind of stuff its why ZH has real value , Thx Tyler and Team

Tue, 05/20/2014 - 13:23 | 4778025 BobaFett
BobaFett's picture

"This kind of stuff its why ZH has real value , Thx Tyler and Team"


This times 1000!

Thank you all for your hard work



Tue, 05/20/2014 - 13:02 | 4777954 ebworthen
ebworthen's picture

We need an indicator called the "DIX" that correlates POMO Tuesdays with equities.

Equities up on Tuesday = the likelihood that the FED is dicking with the markets is high.

Tue, 05/20/2014 - 15:07 | 4778445 rosiescenario
rosiescenario's picture

".....and on Tuesday, the DIX was drooping lower..."



Tue, 05/20/2014 - 13:03 | 4777963 American Dreams
American Dreams's picture

But wait... Its Tuesday, this cannot be.


Tue, 05/20/2014 - 13:04 | 4777965 orangegeek
orangegeek's picture

was funny seeing the S&P down 0.5% earlier and the VIX down 0.8%


Yellen, was that you??????

Tue, 05/20/2014 - 13:10 | 4777976 The worst trader
The worst trader's picture

why bother with the VIX at all? no need for a hedge when stocks always go up.

Tue, 05/20/2014 - 13:33 | 4778053 JenkinsLane
JenkinsLane's picture

Short Vol, otherwise known as the K-Hen trade.





Tue, 05/20/2014 - 14:04 | 4778187 Okienomics
Okienomics's picture

For all the jaw-flappin' that goes on around here (okay, finger flapping), very few show their hands until *after* they've seen the performance.  So what are you buying or selling today?

Okie added VIXY, braving the Tuesday ramp.

Okie added to SO, buying carbon sequestration and dividends.

Okie last week added to UNL, thinking natgas storage is scary low and the rebuild won't make it to normal by winter.

Okie is buying no more PHYS to PSLV, because Okie's positions are already overweight and the last year has SUCKED.

Et tu?

Thu, 05/22/2014 - 17:59 | 4786571 Okienomics
Okienomics's picture

As of May 22 VIXY - Ouch .... UNL - Ouch.  Dammit, I'm holding.

Tue, 05/20/2014 - 14:44 | 4778354 chistletoe
chistletoe's picture

I realize its not a popular trading strategy, but I like to buy low and sell high.

right now I've got a pile of money in KMP, its a pipeline company with solid growth prospects and it pays 7.5% dividends and the stock goes up every time Wall Street gets a little nervous,


and I'm long a pile of VIX calls


aand a 160-year-old coal company (CNX,just look at the yearly chart ....)


and then I got a pile of cash. 


works for me ....

Tue, 05/20/2014 - 15:18 | 4778470 El Hosel
El Hosel's picture

Down Tuesday, VIX could care less... It looks so real, NOT

Tue, 05/20/2014 - 15:21 | 4778471 El Hosel
El Hosel's picture

The Fed are "owning" the VIX, Bernanke said as much in front of the banking commitee. Its a tool of the Fed, no correlation ( for now ) to risk anymore.... smash the vix = restoring confidence in "The Rigged Market". Feel better yet?

Tue, 05/20/2014 - 15:38 | 4778542 Okienomics
Okienomics's picture

Chistletoe, thanks for sharing your unusual strategy.  So I have to ask about KMP.  I've looked at this and other high dividend payers in the energy sector, but I get very nervous when the annual dividend exceeds EPS...  Borrowing to pay dividends.  KMP long term debt has been creeping up.  Not busting your chops as you're obviously happy with the position, so two questions...

1) Do you reinvest those dividends and

2) How long do you hold and/or when do you exit?

Pile of cash works, although I have to admit I hate that it's not out there working, hence my interest in dividend payers.

Tue, 05/20/2014 - 15:54 | 4778591 The Axe
The Axe's picture

How can the VXX be down   very fucking day..ha ha  too funny

Tue, 05/20/2014 - 16:05 | 4778628 TheRideNeverEnds
TheRideNeverEnds's picture

My long VIX position is bigger than a breadbox, for that reason the VIX is likely going back below ten....

Tue, 05/20/2014 - 16:13 | 4778660 Turin Turambar
Turin Turambar's picture

VIX is manipulated.  Best market investment over the last several years would have been to be short TVIX or UVXY.  People who didn't fight the Fed (like me) and realized the rigged nature of the market have made a fortune over the past several years.  I figure I would've made at least $1 million doing the exact opposite of what I did - traded based upon the assumption that the market reflected economic reality.  Boy was I wrong.  :-(

Wed, 05/21/2014 - 00:35 | 4780103 brainlpb
brainlpb's picture

What ever happened to the VIX is low it's time to go? This just in... with a little more rigging VIX is going to -20 and S&P is going to 5000...

Wed, 05/21/2014 - 04:36 | 4780256 CHX
CHX's picture

vexing vix 

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