Is the volatility expansion over?

Using the S&P 500 stock index as a proxy for the stock market, today we saw a modest uptick. It’s now back within a normal range. Realized volatility as measured by the average true range of the past 14 days has trended up. Volatility isn’t directional, so a volatility expansion involves but down and up days.

spx trading

Implied volatility of the S&P 500 stocks had a sharp move up and settled back down some today. Applying the same realized volatility measures to the VIX is a view of the realized vol of implied vol. Yesterday may turn out to have been a good time to exit long volatility positions, or maybe it explodes from here.

ViX #VIX $VIX volatility trading asymmetric

The VIX futures term structure closed 10% contango. The December VIX futures are 10% lower priced than January. The curve is flatter beyond February.


This contango creates a headwind for VIX ETFs that roll each day as they sell the January futures at a lower price and buy the February at a 10% higher price. It’s why the VIX exchange-traded funds and notes trend dow long term. So, they aren’t suitable for anyone to hold for long.

VIX may stay within the range and the stock market trend back up.

We’ll see.

Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Global Tactical.

Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as advice to buy or sell any security. Securities reflected are not intended to represent any client holdings or any recommendations made by the firm. Any opinions expressed may change as subsequent conditions change.  Do not make any investment decisions based on such information as it is subject to change. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but is not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The use of this website is subject to its terms and conditions.

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