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"Old" VIX Plunges To Record Low

Tyler Durden's picture




 

Before there was VIX, there was VXO (or "old" VIX) based on OEX calls and puts and trading all the way back to 1985. Because it covers the 1987 crash period, traders often use it as a more consistent gauge. While attention is focused on VIX being 'near' record lows; VXO has just broken below the crucial 9% level that has only been breached once before and has hit a record low. As Citi warns, this suggests that we are very close to if not at the cycle low (for volatility) - though as we noted yesterday, it is unclear if this is a 'good' low (melt-up in stocks) or 'bad' low (crash).

For only the 3rd time in its history the VXOhas broken below 9%. The first time it did this was December 1993 (8.86%) and then Jan 2007 (8.99%). It came very close in July 2005 when it went to 9.12%.

 

 

But this week it it hit all-time record lows... or record highs in complacency.

*  *  *

NOTE:

VIX:

The Chicago Board Options Exchange Volatility Index reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide range of strikes. 1st & 2nd month expirations are used until 8 days from expiration, then the 2nd and 3rd are used.

VXO:

The CBOE OEX Volatility Index reflects a market estimate of future volatility, based on the weighted average of the implied volatilities of 8 OEX calls & puts. (The nearest in & out of the money call & put options from the 1st and 2nd month expirations)

 

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Tue, 06/24/2014 - 11:57 | 4889559 deflator
deflator's picture

 Is volume included in implied volatility calculations?

Tue, 06/24/2014 - 11:58 | 4889568 THX 1178
THX 1178's picture

Water pulling out from shore before tsunami

Tue, 06/24/2014 - 12:03 | 4889593 Hippocratic Oaf
Hippocratic Oaf's picture

talk about your barbaric relic

Tue, 06/24/2014 - 12:08 | 4889615 Headbanger
Tue, 06/24/2014 - 12:10 | 4889626 max2205
max2205's picture

And peace fell across the world....oh wait

 

 

 

....................../´¯/) 

....................,/¯../ 

.................../..../ 

............./´¯/'...'/´¯¯`·¸ 

........../'/.../..../......./¨¯\ 

........('(...´...´.... ¯~/'...') 

.........\.................'...../ 

..........''...\.......... _.·´ 

............\..............( 

..............\.............\...

 

 

Tue, 06/24/2014 - 13:35 | 4889898 flacon
flacon's picture

@TXH is this the kind of tsunami that causes all boats to rise or all boats to get smashed on the rocks?

Tue, 06/24/2014 - 12:21 | 4889663 Bunga Bunga
Bunga Bunga's picture

It means free land, bullish!

Tue, 06/24/2014 - 12:12 | 4889636 theyellowking
theyellowking's picture

No.

VIX calculation will cut off at strike prices where you see two consecurive zero bid options on both call and put side (does not include these two zero bid options either).

Tue, 06/24/2014 - 12:26 | 4889680 disabledvet
disabledvet's picture

This is a great question.

"Levered to growth, levered to recovery, levered to inflation."
That's the entirety of Wall Street in a single sentence.

That TED spread says to me certainly has all the hallmarks of "buy, buy, buy"....that "everyday is a sale price when it comes to equities!"

The problem is there is no liquidity...growth in LENDING has been moribund for six straight years.

"And it's getting worse."

Tue, 06/24/2014 - 14:08 | 4889997 ziggy59
ziggy59's picture

XO Cognac is good... VSOP is better

Tue, 06/24/2014 - 11:58 | 4889561 kill switch
kill switch's picture

The graph is upside down!!

Tue, 06/24/2014 - 11:57 | 4889564 Squid Viscous
Squid Viscous's picture

I had some "Old" vag once, bad idea...

Tue, 06/24/2014 - 12:00 | 4889571 TabakLover
TabakLover's picture

10% correction in stocks.  End of world, or so it seems.

Tue, 06/24/2014 - 12:06 | 4889597 Dr. Engali
Dr. Engali's picture

Dupe. I'm a fat fingered retard.

Tue, 06/24/2014 - 12:04 | 4889598 Dr. Engali
Dr. Engali's picture

A 10% correction would send all the boomers screaming for the exits.

Tue, 06/24/2014 - 12:25 | 4889675 ENTP
ENTP's picture

lol, Boomers don't have savings.  They spent it all on their 3-series and McMansions in the Burbs....

Tue, 06/24/2014 - 12:33 | 4889700 NOTaREALmerican
NOTaREALmerican's picture

No, there's still allot of 401k loot in the top 20%.

Tue, 06/24/2014 - 12:38 | 4889716 ParkAveFlasher
ParkAveFlasher's picture

That'll find a sinkhole in Florida soon enough.

Tue, 06/24/2014 - 13:40 | 4889912 NotApplicable
NotApplicable's picture

Correct down for what?

Tue, 06/24/2014 - 11:59 | 4889572 Callz d Ballz
Callz d Ballz's picture

Don't you need volume to get a reading?

Tue, 06/24/2014 - 12:14 | 4889614 deflator
deflator's picture

 I can't find the word volume...http://en.wikipedia.org/wiki/Implied_volatility 

"Prices are determined by supply and demand." must be the flaw in implied volatility calculations.

Tue, 06/24/2014 - 12:15 | 4889642 Cthonic
Cthonic's picture

If you get volume, you'll probably get a much higher reading ;)

Tue, 06/24/2014 - 12:00 | 4889575 Dr. Engali
Dr. Engali's picture

Pffffttt...... sub 9%...... Old Yeller can drive it to zero.

Tue, 06/24/2014 - 12:04 | 4889576 NOTaREALmerican
NOTaREALmerican's picture

Looks like I picked a bad time to stop sniffing Vix.  

Tue, 06/24/2014 - 12:03 | 4889592 Soul Glow
Soul Glow's picture

Of course it is at record lows!  We have had an economic revovery!  But growth is still low, as in inflation, so the Fed will continue to prop up...er, I mean support bond prices and continue QE.  But we are tapering, because everything is gradually improving!  Stocks are not in a bubble even though they are at record highs because unemployment is imrpoving, albeit too slowly, thus the bond purchases.  Hey look, it's Elvis!

- Janet "Doublespeak" Yellen

Tue, 06/24/2014 - 12:07 | 4889610 NOTaREALmerican
NOTaREALmerican's picture

It might be double-speak, but based on the articles today (consumer confidence,  West Housing Prices) it appears we are entering a new economic era where the Fed as finally eliminated the business cycle.    Perpertual growth from now until forever. 

Tue, 06/24/2014 - 12:09 | 4889622 Soul Glow
Soul Glow's picture

It's Tuesday, everything is always green on Tuesday.

Tue, 06/24/2014 - 12:13 | 4889630 Grande Tetons
Grande Tetons's picture

Nobody appreciates the beauty of well manicured Bonsai tree anymore. 

Tue, 06/24/2014 - 12:04 | 4889595 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

nasdaq 4400 here we come....oh so close...

Tue, 06/24/2014 - 12:06 | 4889608 Cthonic
Cthonic's picture

For what it's worth, on the 20th, SKEW data series reached it's second highest reading @ 143.26.

Tue, 06/24/2014 - 12:12 | 4889634 Headbanger
Tue, 06/24/2014 - 12:09 | 4889621 kridkrid
kridkrid's picture

maybe something bad... maybe something good. http://youtu.be/tOEJvjK8TM0

Tue, 06/24/2014 - 12:12 | 4889632 hugovanderbubble
hugovanderbubble's picture

Unicorns in Central Park¡¡¡¡¡

Tue, 06/24/2014 - 12:40 | 4889725 Squid Viscous
Squid Viscous's picture

i think those ones are called joo-nicorns

Tue, 06/24/2014 - 12:16 | 4889640 highly debtful
highly debtful's picture
Fill out the correct answer: The world is --> 1) falling apart 2) healing  3) same ol', same ol'. Note to members of the US government, the European Parliament, the Fed, the ECB and private banking institutions: in order not to compromise the validity of this test, please refrain from taking it. 
Tue, 06/24/2014 - 12:35 | 4889705 NOTaREALmerican
NOTaREALmerican's picture

There were some good articles yesterday showing that is just "same ol', some ol'".  

Tue, 06/24/2014 - 12:16 | 4889648 Sudden Debt
Sudden Debt's picture

Simple, the FED is buying everything, sellling nothing and the markets are drying up.

I think we'll see a dow 20.000 way sooner than we all would like to admit.

But what is a stockmarket worth when it's not owned by retail investors and investment firms?
Nothing really.
it's only worth what a normal person in a normal market wants to pay for it.

Tue, 06/24/2014 - 12:20 | 4889659 NOTaREALmerican
NOTaREALmerican's picture

Well,  the word "worth" is kinda funny because it's a "time based" concept.  

Tue, 06/24/2014 - 12:43 | 4889736 deflator
deflator's picture

 Couldn't a big player in the markets like a "central bank" just maintain a net neutral position in calls and puts then just roll them over at each expiration?

Tue, 06/24/2014 - 13:44 | 4889932 NotApplicable
NotApplicable's picture

Not to mention, wholly subjective.

Tue, 06/24/2014 - 12:24 | 4889669 Bunga Bunga
Bunga Bunga's picture

S&P 4000, you read it here first. We have reached what looks like an infinite rise of wealth.

Tue, 06/24/2014 - 12:29 | 4889688 Soul Glow
Soul Glow's picture

Don't forget this - crashes happen during one day.  One day.  Imagine waking up and having stocks cut in half.  Far fetched?  It happens every seven years or so.

Don't forget this.

Tue, 06/24/2014 - 12:31 | 4889689 ENTP
ENTP's picture

Can't happen, circuit breakers go off at 7% down on the S&P.  What will happen is that the opening prints upon reopening will cause the next round of circuity breakers to trigger before anybody can really get out.

Tue, 06/24/2014 - 12:37 | 4889717 Callz d Ballz
Callz d Ballz's picture

Not to mention the HFT layer, now you'll be slightly more screwed.

Tue, 06/24/2014 - 12:43 | 4889738 ParkAveFlasher
ParkAveFlasher's picture

These are devices that can be switched on or switched off.  That there are such devices is indicative of control. 

Tue, 06/24/2014 - 12:31 | 4889691 viator
viator's picture

Don't worry, after it reaches new lows, soon afterwards it always goes back up.

Tue, 06/24/2014 - 13:28 | 4889870 Shizzmoney
Shizzmoney's picture

Notice that in the past, when the VIX goes to an all time low, and consumer confidence goes to an all time high, befoe recessions (and that these recessions keep getting bigger)?

Funny how that happens.  

Tue, 06/24/2014 - 13:31 | 4889871 Hongcha
Hongcha's picture

Two things:

Yes there is a circuit breaker but if it gets thrown on Day 1, on Day 2 it will get thrown again and then again on Day 3.

The money is real but now the market's long participants are eating out of the master's hand.  They are eating well but out of their master's hand.  That hand can be pulled away at any time.  How many areas of life in the U.S. are like this?  Many.  I will not submit to it and that is why I will not participate.

Tue, 06/24/2014 - 13:30 | 4889877 geotrader
geotrader's picture

Clearly the formula used to calculate volatility is outdated and must be scrutinized.

 

</sarc>

Tue, 06/24/2014 - 15:48 | 4890473 The worst trader
The worst trader's picture

Buy the VIX!

Tue, 06/24/2014 - 18:59 | 4891169 luna_man
luna_man's picture

 

 

AMATEUR'S..."short" and be done!

no volatility, no volume=no time to go or stay "long"!

 

goe's up and comes down. Next move, all down!...as you know, Fed. has been very, I say, very busy.   

 

 

pull up any chart of the major's IT'S OVER BOUGHT!!

Tue, 06/24/2014 - 22:09 | 4891822 swass
swass's picture

Wholly crap.  This may be the long VIX play of the lifetime.  When it can't get much more complacent, it can get much more volitile.

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