VIX Is Low. That May Be Because of All the Volatility ETPs
- Volatility gauge hasn’t closed above 15 in seven weeks
- ETN rebalancing impact may include equities ‘slingshot’ higher
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S.
Photographer: Michael Nagle/BloombergExchange-traded products are taking up a bigger chunk of Cboe Volatility Index futures trading than they have in about seven years, and that could be depressing the gauge, according to Nomura Securities International Inc.
When VIX-linked ETPs roll to the next month, they sell front-month futures on the volatility gauge to buy second-month ones. And when that activity becomes a larger portion of overall futures trading, it could have a bigger influence on the level of the index itself. The current impact of ETP rebalancing on the front VIX future is about 20% of daily volume on the index’s contracts, “just smashing the VIX future,” according to Nomura Cross-Asset Strategist Charlie McElligott.