VIX Plunges to Lowest Level in Two Years
Stock market volatility was low already but the CBOE Volatility Index (VIX) (VXX) on Friday fell to its lowest level in two years. Friday’s level is also extremely close to the lowliest readings over the past five five years.
The stock market’s so-called “fear gauge” plunged 8.5% to 11.32 in recent trading, the lowest intraday reading since June 2014, according to FactSet data. The measure takes a reading of the prices investors are willing to pay for options on the S&P 500 index and is used as a real-time measure for expected price swings. On one hand, it makes sense that VIX is this low given the the S&P 500 on Friday was on pace to record another all-time high.
Still, the ultra-low VIX comes at a time of extreme macroeconomic uncertainty. As noted by Barron’s Ben Levisohn, a slew of high-profile investors including Stan Druckenmiller, George Soros, Carl Icahn, Jeffrey Gundlach and Bill Gross have all been bearish on the market – with phrases like “sell everything,” and “get out of the stock market” bandied about.
The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) added 4.1% in recent trading to record another one-year high of its own. This blog noted earlier in the weekthat traders sure haven’t been positioning for lower volatility. Quite the opposite: money has been moving out of XIV in recent weeks at the same time that money has been pouring into VIX-futures exchange-traded products that rise when volatility shoots higher. Some $786 million has moved into the iPath S&P 500 VIX Short-Term Futures exchange-traded note (VXX), while more than $200 million has gone into each the ProShares Ultra VIX Short-Term Futures ETF (UVXY) and the VelocityShares Daily 2x VIX Short-Term ETN (TVIX).
Courtesy of barrons.com