Thursday, July 23, 2009

VIX / Futures: A Rare Situation

The July VIX futures settled this morning at 23.48, and that has left an interesting relationship between the spot index reading and the remaining futures.

VIX Chart

The VIX is up 0.38 percent to 23.78 as the S&P 500 is down 2.5 points to 952. The VIX futures, meanwhile, are lower but continue to carry very large premiums. August futures trade at 27.75, with September, October and November all around 29.20.

This large a premium between the futures and the spot VIX has rarely been seen. And as I have been harping on over the last few days, whenever we have seen this, it has preceded a significant drop in the SPX.

The historical volatility is down to 21.4 percent for the last 20 days, and the 10-day figure is all the way down at 17.5 percent. As I mentioned in yesterday's Trading and Abetting, we have seen quite a bit of volatility selling in individual names, which may be part of a correlation (or dispersion) trade that is being done against long index volatility trades.

(Chart courtesy of tradeMONSTER)

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