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Near Historic Level of $VIX futures premium (Preview)

By Lawrence G. McMillan

At the current time, realized volatility is dropping, $VIX is dropping more slowly, and $VIX futures are remaining at fairly lofty levels because of the uncertainty surrounding the upcoming Presidential Election. So, we decided to take a look back and see if there had been any other times when there was such a large discrepancy between the near-term $VIX futures and historical volatility. It turns out there was only one other time when the premium differential was larger – in late January, 2009. However, it doesn’t seem that there is any market-predicting parallel here.

It could be that occasionally the $SPX option traders get it wrong and pay up for options when there really isn’t any justification for it. Of course, if they are paying up for $SPX options, that raises the price of $VIX futures that expire 30 days prior to any such expensive $SPX options...

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