TVIXF - What's Behind The New 2023 VIX Closing Low?
2023-04-18 04:29:00 ET
Summary
- On Friday, the S&P 500 Volatility index (VIX) saw a new 2023 closing low vs. the S&P 500 itself.
- The last time the VIX got that low there was a drawdown on the S&P 500 from 4195.44 to 3808.86 on the Monday after the SVB failure.
- Unless the stock market is under serious pressure, the VIX tends to decline on Fridays, as there are more options expiring on a Friday than any other weekday.
In this first chart, the black line shows a new closing low for the S&P 500 Volatility index ( VIX ) vs. the S&P 500 itself. The VIX closed at 17.07, on the low tick of the day. The VIX made it 0.01 (one tick) lower intraday on February 2, which was the highest intraday value of the S&P 500 for 2023 at 4195 .44.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Unless the stock market is under serious pressure on a Friday, like the Friday SVB failed, the VIX tends to decline on Fridays, as there are more options expiring on a Friday than any other weekday. There is computerized trading that has the algos short “out the money options” expiring that day, both puts and calls, which suppresses the VIX index. From the weekly expirations, the last open is the biggest.
As this drop in the VIX was happening, a CNBC anchor kept asking why the VIX was near 17 when the stock market is down. Well, that’s why – because they were short more options on Friday than any other day. Many times I have seen the stock market end up down 1%, and the VIX still down for the day, which used to be rather unusual back in the day before the absurdity called “Zero Days to Expiration” (0DTE) options began to get listed, which basically are options listed at the open that expire the same day.
Since there is fierce decay in a short-term options price, the best way to trade these is from the short side, as the decay runs to the seller’s favor. And when institutional trading desks begin to short options in size and their own algos begin to help them push around the futures wherever it is most advantageous for their 0DTE short sales, this is the kind of strange market situation we can see.
But even with the fascinating realities of institutional 0DTE short selling, which have been with us for over a year now since 0DTE volumes exploded, a low VIX is still a low VIX. The last time the VIX got that low, there was a drawdown on the S&P 500 from 4195.44 to 3808.86 on the Monday after the SVB failure. There is no way to guarantee a 400-point sell-off on the S&P 500, but there is a way to suggest with a high degree of probability that some type of shakeout is coming. The stock market zigs and zags. Right now, it has been rising for two quarters in a row, so the zigs are bigger than the zags in this uptrend.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
All I am saying is that one should look for a smaller “zag” that, at a minimum, tags the 20-day moving average (about 100 points lower) and could extend all the way to the 200-day moving average (about 200 points lower). Any bigger sell-off cannot be predicted unless there is some trigger, like another bank failing or something terrible happening in Ukraine, which are possibilities but unknowable ahead of time.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
As I have pointed out previously, the stock market is a lot weaker under the surface, where the equally weighted S&P 500 Index (SPXEW) is dramatically lagging its market cap weighted cousin SPX, which started happening after the SVB failure. In fact, it is so bad under the surface that the SPXEW 200-day moving average is now falling with the SPXEW below that key level for the past four weeks and seeing resistance at that level, while the SPX is well above its 200-day moving average for the past three weeks.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.
Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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What's Behind The New 2023 VIX Closing Low?