Week in Volatility

Another positive week for the market, and negative week for volatility. VIX and VSTOXX long term contracts continued to fall, declining by about a vol point. VIX Feb futures having only two full trading days to go settled at 16.60, a vol point above the index.

Week in Volatility

While stock and volatility indexes remained choppy most of the week, VIX took a beating on Friday, declining from already technical low of 17.50 to 16.00. I am sure that part of the decline is to be explained by lowered trading activity around holidays and non-trading days (VIX is calculated in calendar days, making it low biased) however that does not explain the whole story - for example VSTOXX that has similar calculation and holidays actually rose on Friday. So I will do some cross-asset comparison: GVZ - gold volatility also dropped on Friday to a new low, MOVE index that is tracking interest rate volatility is at 1-year high, JPMVXYG7 index that tracks implied volatility of G7 currency options is somewhere in between its 1-year high and low. My forecasts (and my trading positions) are for VIX to increase in price.

Week in Volatility

S&P and Eurostoxx fell about 2% this week, however Friday's action really pushed VIX futures higher. VSTOXX futures ended the week only slightly higher - mostly because of the time difference having closed on Friday while VIX continued to rise, and I fully expect VSTOXX futures to open lower on Monday (by about a point) to make up the difference.

Overall this week's action surprised me. I was positioning my portfolio to profit from further fall in the VIX, where my max profit zone is from about 18 to 20 in the front month, however given Friday action (VIX high at > 21) with just 2 full trading days to go before expiration seems like a very uncertain proposition.

While I thought that the market decided that it is the time for low volatility regime, we're still probably in the mid vol levels - and can easily see VIX push higher given a catalyst.

Week in Volatility

It was a bumpy ride for the VIX (and my portfolio) this week. The index rose above 28 on Tue and Wed, and fell below 25 on Fri. The week to week change in the equity and volatility indexes was completely overshadowed by intraweek action. VIX and VSTOXX futures declined in the near term, however the long-term levels were unchanged. With volatility rising and falling so much in one week, it seems to be a good time to rethink the forecasts. My model still shows Sep expiration forecast of 25.36 (higher than my previous forecast) with volatility of 3.85 (lower than my previous forecast).