iPath S&P 500 VIX Short-Term Futures ETN (VXX)

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VIX Index Closes Below 10 Again, as Professor Called VIX Level the Biggest Financial Mystery
By Matt Moran | June 2, 2017

VIX INDEX VALUES

The CBOE Volatility Index (VIX) is a measure of market expectations of 30-calendar-day volatility conveyed by S&P 500 Index (SPX) option prices. The VIX White Paper notes that the VIX Index estimates expected volatility by averaging the weighted prices of SPX puts and calls over a wide range of strike prices. The selected options are out-of-the-money SPX calls and out-of-the-money SPX puts centered around an at-the-money strike price. I recently have heard comments and questions on the topic of why the VIX Index recently has been lower than its long-term average, and I also have been asked if there continues to be interest in hedging of downside risk in stock portfolios. The average of the daily closing values on the VIX Index was 19.7 in the 27 years from 1990 through 2016, but only 11.8 year-to-date in 2017 (through June 1).

EXHIBIT 1 – VIX INDEX CLOSED BELOW 10 ON 14 DATES


EXHIBIT 2 - VIX INDEX SINCE 1990


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CONCLUSION

For people who ask me about the VIX Index recently being much lower than its long-term average, I suggest that they look at the following three factors to gain a fuller picture of implied volatility, and the interest in and costs for hedging strategies –

1. The SPX skew and the related SKEW Index have been relatively high in recent years, and there still is strong demand for hedging severe downside risk;
2. The VIX Index generally has been higher than the historic volatility of the S&P 500 Index in 2017 (using this comparison, one could argue that the VIX has not necessarily been “low”); and
3. While the VIX Index was valued at 10.68 on the morning of May 30, the VIX futures term structure chart showed that most tradable VIX futures were priced higher than the VIX spot index.

http://www.cboe.com/blogs/options-hub/2017/06/02/vix-index-closes-below-10-again-as-professor-called-vix-level-the-biggest-financial-mystery

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