Monday, February 22, 2010

Market Update 2/22/10

Even though the market closed down today, the implied volatilities continued to go down.

In the past 2 weeks (since February 8) the VIX came down from 26.51% to 19.94% today. In the same time S&P 500 was up 5% while HYG (high yield) was up 2.7%.

The VIX Futures term structure went from flat on February 8 to upward sloping today. The longer term VIX futures came down as well. The August VIX futures went down from 26.25% to 24.2% over this time period.
Several bloggers talk about the VIX being oversold.

Since 1993 the VIX (starting between 25% and 30%) fell at least 5% points over 2 weeks 65 times. On average over these 2 week periods the VIX fell 6.1% points and the SPY was up 4.8%.

In the past 2 weeks VIX fell 6.6% and the SPY was 5%, which is consistent with historical data.

High yield OAS did not tighten as much over this period. My VIX fair value model (which is based on OAS) shows that the VIX might be slightly oversold relative to high yield.

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