VIX Breaks 30, Kills VIX ETF/ETN Trades (VXX, VXZ)

The CBOE Volatility Index, or the beloved ‘VIX’ or ‘Fear Index,’ has reached a level not seen since September, 2008.  While the low yesterday appears to be 30.0, we have not seen this number below 30.0 since September 19, 2008.  In October we saw a high of 89.53 and this was around 50 even at the market lows in March.  It seems there was some price sensitivity to it as the index values came lower and lower.  The drop in the VIX is also having some key impacts on the ETF’s (actually ETN’s) iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) and the iPath S&P 500 VIX Mid-Term Futures ETN (NYSE: VXZ).

The VIX ETF’s (actually ETN’s) are hitting new lows as well.  The iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) is down 2.2% at $76.16, compared to a 52-week range (actually about 3+ months is all) of $77.49 to $120.00.  The other VIX-ETN is the iPath S&P 500 VIX Mid-Term Futures ETN (NYSE: VXZ) and its shares are up 0.6% at $88.35, while its 52-week trading range (really only 3-months old) is $87.73 to $114.91.  The only good news on this front is that these ETF’s (again, really ETN’s) are now trading at higher volume and with more liquidity than when these launched.

In other words, the markets are becoming excessively complacent again and we ‘may’ be getting back to more historic levels.  A period where the VIX’s level of the 40’s, 50’s, 60’s and 70’s on up is an anomaly.  From mid-2007 this crossed above 20 and the new range for over a year was the high-teens to the mid-30’s.  Then in late-2008 along with the markets sustained selling we saw the levels go through the roof to all-time highs since this started to be measured.

In theory, this also means that you can start using options for both hedging and for speculating for levels much cheaper than at any point in the recent past.  That is the theory anyhow.

If the market cooperates and if the VIX manages to head lower, you are going to have technicians pointing to the end of the volatility and the end of the fear and panic.  If…

JON C. OGG
MAY 19, 2009