Dan Mikulskis'  Instablog

Dan Mikulskis
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I advise institutional investors on investment strategy and using derivatives. In previous roles I've modelled and traded volatility products across FX and equity markets.
  • VSTOXX Still Trading At Premium To VIX, But Both At Low Levels 0 comments
    Mar 29, 2013 1:06 PM

    No great surprise given the recent events in Cyprus, but as we can see from the chart below VSTOXX continues to trade at a higher level than the VIX or VFTSE volatility indices, continuing a trend that's been evident since late 2011.

    (click to enlarge)VolRadar : Equity volatility indices to 28 March 2013

    In particular the Cyprus situation has seen the VSTOXX index spike a little up to a level of around 21, whereas the VIX has been anchored to super-low levels around 13.

    However the VSTOXX index is well short of the levels it reached in May of 2012 where it reached a level of around 35, or September 2011 where it topped 50.

    The CVIX (Currency volatility) index remains slightly elevated, but also below the May 2012 and September 2011 levels.

    Given the amount of uncertainty out there, it continues to seem odd to me that implied volatilities are so low, but that reflects market participants' collective perception that central banks continue to be willing and capable of taking actions that will calm markets.

    Whether that will continue to be the case for the rest of this year, well, we'll see. It certainly has been the case that the VIX can remain low for multi-year periods (e.g. 2004-2005), but recently history has shown us that unexpected events have a habit of coming along and market reactions can be sharp.

    For more volatility market insights follow me on twitter @danmikulskis

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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