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Yesterday's Unusual VIX Move Examined

|Includes: SPY, SPY, iPath S&P 500 VIX Short-Term Futures ETN (VXX), VXZ

Yesterday the S&P 500 Index (SPX) gained about 3%, while the CBOE Volatility Index (VIX) also gained over 3%.  This is an unusual dichotomy, because volatility usually goes down when the market rallies.

Alan Farley
's comments on this:

"The S&P 500 and VIX have risen in tandem 26 times since August 2007, including yesterday's 3.48% VIX gain, coupled with a 2.96% S&P rally.
In the follow session, the S&P has fallen 18 times for an average loss of 1.6%."

My take is that some of this is due this being an Options Expiration Week combined with a lot of big earnings reports.  The key with yesterday is that the CBOE Equity Put/Call Ratio (EPCR) plummeted.  What this means to me is that the big VIX move on Wednesday was likely due to massive Call buying.  That is the most likely combination of a rising VIX/falling EPCR.

So was this Call buying "smart money"?  Thus far, the jury is out ... the markets are flat/mixed today after 3 days of strong gains.