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VIX Volume Hits All-Time High in Complacent Market


CBOE Volatiltiy Index related exchange traded funds are revealing low implied volatility, with the VIX at its calmest in at least seven years. However, trading activity on VIX futures touched an all-time high in 2013.

The iPath S&P 500 VIX Short Term Futures ETN (VXX) , a VIX-related exchange traded note, and the ProShares VIX Short-Term Futures ETF (VIXY) both declined a little over 61% in the past year.

The VIX is now trading around 13.3 and averaged 14.2 a day over 2013, the lowest reading since 2006. The Volatility Index is constructed using a variety of S&P 500 Index options and measures the market’s expectations of 30-day volatility. VIX values below 20 typically reflect more complacent market conditions, whereas a VIX reading above 30 translates to large amount of investor fear and volatility.

“This volatility collapse is concerning,” Jim Strugger, managing director and derivatives strategist at MKM Partners, said in a Bloomberg article. “U.S. equities are losing any semblance of risk.”

The Volatility Index has remained relatively subdued over 2013 as investors grew more confident in face of a bull equity rally.

“Accommodative central bank policies have helped create a risk-on mentality, not just in equities but in global volatility in general across multiple asset classes,” Eric Metz, a derivatives strategist and fund manager at RiverNorth Capital Management LLC, said in the Bloomberg article.

Meanwhile, the CBOE Futures Exchange announced that the CBOE Volatility Index, or VIX, trading volume touched a new all-time high in 2013, according to a press release.

In 2013, VIX futures trading volume totaled 39.9 million contracts for the year, a fourth consecutive annual volume record, surpassing contracts traded in 2012 by 68%. Average daily volume was 158,508 contracts, a fourth consecutive annual record as well and up 67% from 2012.

iPath S&P 500 VIX Short Term Futures ETN

For more information on the CBOE Volatility Index, visit our VIX category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.