The Vix index, a measure of volatility in the market, has been descending steadily since its late 2008 highs. Vix watchers are now particularly tuned into when it might possibly reach a bottom.
Since the index fell below 30 on Wednesday, the Vix and More blog now speculates we may have reached that point. This is particularly the case considering the record volumes that went through the VXX ETF on the same day, which due to an idiosyncrasy cannot be shorted. As Vix and More‘s Bill Luby explains:
While all eyes we watching the VIX take a swan dive this morning, I failed to hear any chatter about the VIX ETN, VXX. Though admittedly not as sexy or as volatile as its index counterpart, VXX still managed to fall over 40% from its February high on the way to making a new all-time intraday low of 71.96 today, before rallying late in the session to finish the day with a gain of 1.32% and a close of 77.38. What really got my attention, however, was today’s new record volume of 825,338 shares.
Since VXX is less than four months old, traders are still getting up to speed on some of the VXX’s idiosyncrasies. Given that VXX cannot be shorted (at least in my accounts), there was very little in the way of speculative interest in this product while volatility was cratering over the course of the past 2 ½ months. The key takeaway, however, is that today there was a record number of bets on volatility using VXX. I suspect I am not the only one who thinks we probably just saw a VIX bottom.
Today may also have been the first indication that VXX has the potential to be a superb speculative vehicle in addition to a hedging tool. With an average intraday range of almost 5% and daily change approaching 3%, VXX could even join the ranks of the triple ETFs as a preferred day trading vehicle. The VIX still has a long way to go before it becomes a staple of the trading community, but today was definitely a big step in that direction.
Of course, if the Vix really reached a bottom that could imply we’re in for a bumpy ride from now on.
Related links:
Where will the VIX bottom? - Vix and More
Vix falls below key 30 level as fear eases – FT