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CFE: Where will VIX go from here?

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Where will VIX go from here?


Even a casual observer knows that VIX has been at very low levels in 2017.  In fact, VIX crossed below the psychologically significant 10.00 level three times (so far) in 2017.  This is a price level that was last crossed in 2007.  Low VIX accompanies low realized S&P 500 volatility which means despite VIX hovering around low levels, volatility sellers are still in the market and profiting from short VIX futures positions. 

Since 2007 was the last time VIX dipped below 10, I decided to take a look at VIX action for the full year in 2007 and compare it with the first four months of VIX action in 2017.  The chart below compares 2007 and 2017 price action.


What is worth noting for the 2007 price action is that despite the relatively tame price action to start 2007, things took off with VIX topping 30 before the end of 2007.  The point is that despite VIX being low, it didn’t maintain low levels for the balance of 2007.  Traders who may have been happily shorting VIX at the beginning of 2007 were in for a few volatility events by the end of 2007.  We have no idea of knowing how the balance of 2017 is going to play out for volatility traders, but what we do know is that eventually VIX returns to higher levels.  Stated a little more plainly, it’s not a matter of if VIX will move up, it is just a matter of when this will happen. 



RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance. The information contained herein is provided to you for information only and believed to be drawn from reliable sources but cannot be guaranteed; Phillip Capital Inc. assumes no responsibility for errors or omissions. The views and opinions expressed in this letter are those of the author and do not reflect the views of Phillip Capital Inc. or its staff.