So it’s a pretty ugly month for S&P 500 Index Options (CBOE: SPX).
Down about 5%. Fugly. Yet the CBOE Volatility Index (CBOE: VIX)? Doesn’t seem to care.
Fluctuations up and down, but pretty much unchanged. So should options trading investors get worried that we’re not … worried?
Well, what if we look back a little further. Here’s SPX over the past 3 months.
We have gone up and down, but we’ve not budged an inch since about March expiration. The VIX?
It’s literally down 1 point. Or zero points, depending on the exact day you look at around March expiration. So from this modestly longer perspective, VIX is unchanged with SPX unchanged, about what one might expect.
What’s more, realized volatility hasn’t exactly exploded lately. It sits in the low teens in SPX. The market has acted quite poorly, but in a pretty orderly manner.
The thing to remember is that the VIX is not an inverse exchange-traded fund like the ProShares UltraShort S&P 500 (NYSE: SDS) or ProShares UltraShort QQQ (NYSE: QID), to name a couple. It measures volatility. Yes it generally moves in opposition to the market. But not always. We get high- volatility rallies, as well as low-volatility selloffs. And we’re in the midst of the latter right now.
Could the speed of the selling pick up? Of course. But it hasn’t happened so far. And traders don’t seem in any great hurry to jump ahead of the slow moving train and anticipate when the pace of selling will pick up.
On the margins, that’s modestly bearish. You want to see a Fear spike. But I’d emphasize the word “modestly”. It’s also summer, which in and of itself depresses options volatility.
Follow Adam Warner on Twitter @agwarner.