The CBOE Volatility Index fell sharply even as the S&P 500 slipped again yesterday.
The VIX ended the day down 1.39 points, or 7.33 percent, to its session low of 17.57. It was above 19 at the open and again around midday trading.
The drop in the VIX came even as the S&P 500 gave up more than 10 points to close at 1365 exactly. The SPX, which is inversely correlated to the volatility index, was below 1356 at its worst levels of the session and recovered a bit in the afternoon.
The drop in the VIX was not just a statistical anomaly, as the VIX futures followed suit. The August futures were down 1.05 points, or 5.33 percent, to 18.65. The September contracts lost 0.65 points to close at 20.7.
The VIX option volume was again relatively light at 240,000 contracts. Option volume was about half that level in the the iPath S&P 500 VIX Short-Term Futures ETN (VXX). In both, the calls outpaced the puts almost 2 to 1.
The VIX drop was the result of lack of real volatility. A VIX of 18 suggests a daily move in the SPX of 1.2 percent, which is what the intraday move happened to be. So with the news out from the Fed and the European Central Bank, the volatility premium came out as well.
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