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 [4], 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%.
[5]
But this week it it hit all-time record lows... or record highs in complacency.
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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)
