Volatility indexes popped across the board on the Dubai news last week.  If traders are concerned about the effects of this particular event, their reaction is overblown – as is already clear, most of the direct exposure to Dubai World appears to rest with HSBC (HBC) and some Continental European banks. It seems smart, however, to be thinking about the significance of debt burdens in other countries, and about what precedent will be set by the resolution of the situation in Dubai.
When equity index options consistently price in moves of more than 1.5% on two-thirds of trading days , Friday’s trading range should not be a surprise, even if you believe equity volatility is significantly and consistently overpriced. We wouldn’t expect longer-dated volatility futures contracts to move noticeably on last week’s news, but even the December VIX contract only lifted slightly.
CBOE appear to have stopped distributing data for ICJ, the January 2010 implied correlation index, so ignore the continued declining ratio at  this week.
My comments in previous issues regarding short oil / long oil volatility began playing out last week. [15-17]