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The VIX Is Dead! Long Live The VIX!

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This article is more than 7 years old.

After two weeks of intense volatility in the markets and in volatility itself we are left with some very interesting statistics:

I already highlighted the incredible volumes of VIX related ETPs here.

Both UVXY and TVIX are at their all-time closing lows.  VXX barely managed to escape that ignominious fate by about 50 cents.

VIX and VIX futures both rallied well ahead of the Brexit vote - but had a large disconnect once the vote occurred.

Volatility actually started to increase as stocks were still rising when Bremain was viewed as the front runner.  Then volatility continued to increase as concerns about Brexit finally hit U.S. markets.

But the truly telling feature was that after the surprise result, VIX - which is an observable calculation based on option prices, continued to soar (briefly) while the traded product - VIX futures barely budged and led the downturn in volatility (and presumably some of the upturn in the stock market).

That disconnect is interesting enough, but the fund flows are also peculiar.

Here we have the futures contracts - probably indicative of institutional flows - showing a decreasing open interest.  Yet UVXY, at all time lows, with all the impediments to good performance I have written about here, just saw a spike in inflows.

I wish I could say that I completely understood what is going on.

Partly, I think my theory that there was too deep of a short base for the market to have a severe decline has been validated, but that isn't the whole story - and does little in terms of figuring out what is next.

Is VIX due for further declines?  It is 14.8 heading into a potentially quiet summer where the market has made it through an FOMC meeting and the Brexit vote - which could indicate lower VIX ahead.

At the same time there is a glimmer of contrarian hope that VIX futures open interest has dropped - but that is at least partially offset by the grim determination with which UVXY attracts inflows.

Last weekend there were many articles looking forward to ongoing levels of increased volatility - yet here we are, wondering how far the VIX squeeze can go?  Especially when you consider that VIX futures remain 'expensive' or steep relative to spot VIX.

Nothing is easy in this market.  I am leaning towards the view that much of the squeeze in stocks (certainly partly VIX driven) is near an end, but the signal is far from clear.

Disclaimer: The content provided is property of Peter Tchir and any views or opinions expressed herein are those solely of Peter Tchir. This information is for educational and/or entertainment purposes only, so use this information at your own risk. Peter Tchir is not a broker-dealer, legal advisor, tax advisor, accounting advisor or investment advisor of any kind, and does not recommend or advise on the suitability of any trade or investment, nor provide legal, tax or any other investment advice.