"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.

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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.


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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deflator's picture

 Is volume included in implied volatility calculations?

THX 1178's picture

Water pulling out from shore before tsunami

Hippocratic Oaf's picture

talk about your barbaric relic

max2205's picture

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









........('(...´...´.... ¯~/'...') 


..........''...\.......... _.·´ 





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?

Bunga Bunga's picture

It means free land, bullish!

theyellowking's picture


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).

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."

ziggy59's picture

XO Cognac is good... VSOP is better

kill switch's picture

The graph is upside down!!

Squid Viscous's picture

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

TabakLover's picture

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

Dr. Engali's picture

Dupe. I'm a fat fingered retard.

Dr. Engali's picture

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

ENTP's picture

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

NOTaREALmerican's picture

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

ParkAveFlasher's picture

That'll find a sinkhole in Florida soon enough.

Callz d Ballz's picture

Don't you need volume to get a reading?

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.

Cthonic's picture

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

Dr. Engali's picture

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

NOTaREALmerican's picture

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

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

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. 

Soul Glow's picture

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

Grande Tetons's picture

Nobody appreciates the beauty of well manicured Bonsai tree anymore. 

Hindenburg...Oh Man's picture

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

Cthonic's picture

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

kridkrid's picture

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

hugovanderbubble's picture

Unicorns in Central Park¡¡¡¡¡

Squid Viscous's picture

i think those ones are called joo-nicorns

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. 
NOTaREALmerican's picture

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

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.

NOTaREALmerican's picture

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

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?

NotApplicable's picture

Not to mention, wholly subjective.

Bunga Bunga's picture

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

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.

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.

Callz d Ballz's picture

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

ParkAveFlasher's picture

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

viator's picture

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

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.  

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.

geotrader's picture

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