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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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.

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.

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.

BobaFett's picture

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

Stoploss's picture

No 52 week today, so a halfer.

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

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.)

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?

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?


hugovanderbubble's picture

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

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



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.

rosiescenario's picture

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



American Dreams's picture

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


orangegeek's picture

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


Yellen, was that you??????

The worst trader's picture

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

JenkinsLane's picture

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





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?

Okienomics's picture

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

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 ....

El Hosel's picture

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

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?

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.

The Axe's picture

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

TheRideNeverEnds's picture

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

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.  :-(

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...

CHX's picture

vexing vix