VIX Charts Show How Unsettled the U.S. Stock Market Still Isby
Options costs and other indicators still flashing caution
Inflows into volatility notes swell as S&P 500 rallies
Even after the best weekly rally of 2015, the U.S. stock market is a place fraught with peril.
Lingering anxiety is visible in various measures of option costs and volatility expectations, including in the enormous market for exchange-traded funds tied to future stock swings. The Chicago Board Options Exchange Volatility Index may have just staged its most sustained retreat in history, but other measures of investor nervousness remain elevated.
Short-term Volatility Inflows
Concerned the calm patch won’t last, traders poured $249 million into an exchange-traded note whose value increases with short-term turbulence in the S&P 500, according to data compiled by Bloomberg. That marks a rebound from nine straight days without any inflows and a stark change from the week after U.S. equities bottomed, when investors withdrew almost $1 billion from the note.
VIX Futures Curve
This graph shows the forward curve of VIX futures, a chart that in times of relative peace slopes upward. Normally, real-time or spot volatility sits below the price of later-dated futures, reflecting the possibility that something bad will happen between now and then.
That’s the situation today -- but it follows a particularly long period of what traders call inversion, when the price of options protection is higher today than it is at some point in the future. It took more than 7 weeks for the VIX curve to right itself after the August selloff, compared with just six days following the equity slide in October 2014.
SKEW Index at All-Time High
Buying protection against wide swings in the stock market has never been more expensive, according to a CBOE index measuring the price of out-of-the-money equity contracts. According to the firm’s website, a reading of 100 in the SKEW index means that expectations for extreme market events are about where they usually are. As of today the gauge is sitting at 149, the highest in data going back to 1990.