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VIX Falls 8%; VIX Futures Maintain Premium

Posted by Scott Murray on March 4, 2013
Posted in: Uncategorized. Tagged: analytics, futures, Options, scott murray, VIX, Volatility, VXX.

The VIX retraced to the lowest level since February 19th, while the VIX futures sit at the near-month 7% higher than spot VIX and 11% higher for April. The negative roll yield, or the daily cost for the VXX and other short-term futures ETFs to roll stands at 5%.

March is the 4th strongest month for the S&P 500, so those making their bear case may have to wait a while. The sequester is now just a fact of life, and no one seems to really care, certainly not those in Washington who are clearly taking stances to enhance their re-electability, nothing more. We had three significant dump days in the market over the last week and a half, and the market seems ready to move forward as the weak hands have been shaken out.

The VIX futures held on to a significant premium, but the countdown is now on to expiration. Every day that goes by to March 19th, futures holders are going to have to roll out or sell if the VIX remains at these levels. The result of a flat or down VIX over the next couple weeks is that the roll yield will widen, and the cost of holding the VXX will increase. The VXX currently holds an approximately 50% position in each of Viagra 100mg March and April futures.

With 11 trading days until expiration, the VIX futures still have a few events on the horizon, most notably the jobs number on Friday. Next week there isn’t a whole lot of key data, as the retail sales data the following week have already hinted at weakness outside of the auto sector. Walmart and others have cautioned that the consumer took a double hit due to tax changes and delayed returns. A bad number could be explained/excused away quickly.

Outlook/Action:

Holding tight with the April $19 VXX puts, and will take a look at opportunities on spikes. Historically, tomorrow is the strongest S&P day of the month, with at 71% historical chance of trading higher.

VX G3-CF CBOE VIX FUTURES February2013 16:44:34 13.07
VX H3-CF S&P 500 VOLATILITY March2013 16:05:00 15.10 -1.30 16.25 16.50 15.05
VX J3-CF S&P 500 VOLATILITY April2013 16:05:13 15.85 -1.10 16.80 17.00 15.85
VX K3-CF S&P 500 VOLATILITY May2013 16:05:05 16.59 -0.76 17.30 17.45 16.55
VX M3-CF S&P 500 VOLATILITY June2013 16:04:56 17.12 -0.48 17.55 17.82 17.0

Link du jour:

Short sales as a percentage of stock outstanding fell to levels last seen in 2007. Of course, the media makes a correlation to 2007, that is what they do best. Bad analogies and correlations while doing zero homework:

http://www.businessweek.com/news/2013-03-03/short-sales-fall-53-percent-with-u-dot-s-dot-bull-market-starting-fifth-year#p1

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