Futures in Volatility: Market Summary and Analysis

VIX Edging Higher: A Warning?

By Lawrence G. McMillan

The settlement for the CBOE Volatility Index (VIX) May futures contract was 18.02, up by a healthy percentage from the April settlement of 14.86. Moreover, VIX itself began to rise late this week. A rising VIX is generally symptomatic of a bearish stock market, so these rises may be a warning sign to stock holders that a correction is approaching.

Figure 1 shows the entire history of the monthly VIX settlement prices, since the inception of futures trading in May 2004 (trading first began in March, 2004, and the first contracts that settled were the May, 2004, futures). The symbol for the monthly settlement price is VRO. This month, we have also overlaid the S&P 500 Index (SPX) on it. While there is not a perfect (inverse) correlation between VIX and VRO, it is easy to see that VRO (and, by inference, VIX) has been declining since early 2009, while the stock market (SPX) has been rising.

The full Market Summary and Analysis can be found in The CFE’s Futures in Volatility Newsletter Volume 5, Issue 5.