VIX Plunges to Lowest Level in Two Years
by Chris Dieterich [1]
Stock market volatility was low already but the CBOE Volatility Index (VIX [2]) (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 [3] including Stan Druckenmiller, George Soros, Carl Icahn, Jeffrey Gundlach and Bill Gross have all been bearish on the market – with phrases like “sell everything [4],” and “get out of the stock market [5]” bandied about.
The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV [6]) added 4.1% in recent trading to record another one-year high of its own. This blog noted earlier in the [7]week [7]that 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 [8]), while more than $200 million has gone into each the ProShares Ultra VIX Short-Term Futures ETF (UVXY [9]) and the VelocityShares Daily 2x VIX Short-Term ETN (TVIX [10]).
Courtesy of barrons.com [1]