The CBOE Volatility Index posted a five-year closing low as it collapsed even as the S&P 500 fell as well, again bucking their usually inverse relationship.
The VIX dropped 1.04 points, or 7 percent, to end the day at 13.70, its lowest close since June 2007, after declining through the session. This SPX settled at 1404.11, down 1.76 points, but only after paring earlier losses.
The volatility index is typically up when the S&P 500 is down. Further, the VIX usually shows relative strength on Mondays, as the SPX options are repriced after the weekend time decay.
But part of the issue yesterday may have been the fact that the VIX calculation drops the front-month SPX options with less than a week to expiration. It then uses the September options and backs out the October contracts. But that only explains some of this, as that is a monthly occurrence and the VIX is at a multi-year low.
The VIX futures were also lower. The August futures fell 0.55 points, or 3.36 percent, to finish trading at 15.80. The September futures were down 0.30 points to 18.25.
More than 638,000 VIX options traded on the day, including 483,00 calls, even though volume for the total option market was light at 12.2 million. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) traded just shy of 200,000 options, but puts outpaced calls.
The VVIX Index, which measures the implied volatility of the VIX options, was actually higher, gaining 5.6 percent to finish at 89.58. This suggests that traders were starting to pay up for VIX calls even if the VIX itself was lower.
Overall, however, it appears that traders are not concerned about a near-term bump in volatility and apparently expect the Fed and European Central Bank to backstop the market.
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