Aug 6, 2011

Week in Volatility

Global markets were rocked by sharp index declines and increased volatility. SPX declined 7% and STOXX was down 11% since from last friday. Yesterday VIX has reached an intraday high of almost 40, a level not seen since flash crash aftermath over 12 months ago. Since last week VIX rose 6.75 points, VSTOXX rose 11.62, and RTSVX by 10.23.

Implied volatility of VIX options also has spiked to tremendous levels. Please note that the normal shape of VIX ATM IVs is to decline with maturity because of mean-reverting property. Implied volatility in VSTOXX options also rose, but not as much as VIX. I don't think there are any opportunities in VSTOXX trading because I calculate implied volatility from settlement prices, and bid ask spreads are significant.

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