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A Large $VIX9D Drop Yesterday

By Lawrence G. McMillan

Yesterday, the 9-day Vol Index dropped from 14.68 to 9.83!  This was not some arithmetic quirk with expiring options or a holiday or anything like that.  This was a true drop in the price of near-term $SPX options. $VIX9D is based on the Sept 27th and Oct 4th expirations. $SPX was essentially unchanged yesterday (down 23 cents).  Here is what happened to the at-the-money put – the 2990 strike:

Date: Friday, 9/20/19 Monday, 9/23/19 Change
$SPX Sept (27th) 2990 put’s bid price 20.40 11.60 –8.80
$SPX Oct (4th) 2990 put’s bid price 29.70 21.80 –7.90
$SPX Oct (11th) 2990 put’s bid price 36.80 29.50 –7.30

 

Of course, that is just one strike.  The Volatility Index calculations involve all of the strikes that have bids and offers – so, literally hundreds of them in the case of $SPX.  Those are the facts, but what caused this?  I have no idea, but you can see from $VIX (the 30-day vol) and $VIX3M (93-day vol) that it didn’t extend out to those expirations.  It’s like someone rang a bell and said, “Okay, start selling the heck out of the $SPX options, now that the September 20th expiration is out of the way!”  

One other side effect: the term structure of the CBOE Volatility Indices is now very steep – a fact which is not reflected in the $VIX futures term structure.  The nearest term $VIX futures contract – expiring tomorrow September 25th – settled at 15.22 yesterday, and next week’s future settled at 15.85.  Those are well above the 9.83 level of $VIX9D..

Read the full article, published on 9/24/19, by subscribing to the Daily Volume Alerts now. 

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