Market Analysis

$VIX Crush

Oh look, the $VIX is getting crushed again. Given all that is going on globally one may be inclined to express surprise, but it really isn’t a surprise. See there’s this monthly program running through markets and it, more of than not, crushes the $VIX with regularity during its special time of the month. No, the $VIX doesn’t have a period, but it meets its fate during the period of OPEX, monthly options expiration week.

Most notably it’s the futures contract ($VX) that rolls over and the resulting contango sees the $VIX get crushed.

These $VIX dumps into oblivion occur during the futures roll-over onto the next month’s contract which either occurs during the week of OPEX or the week after:

But of course it doesn’t happen every month and not in the same way, but more often than not it happens in most months in one shape or another. 2017 was particularly brutal for fans of volatility. Since then we’ve seen more sizable spikes and a trend of increasing volatility with higher lows.

And asides from the occasional exception we see what we’re seeing right this week, the $VIX crush.

Don’t believe me? See for yourself, here’s the last 6 months:

The August market correction aside (which showed a period of heightened volatility) the $VIX crush program (and corollary market levitation program) generally begins from some sort of volatility peak at the end of the prior month or beginning of the running month, and then volatility gets systematically crushed into OPEX, no matter what’s going on in the world.

And so this week $VIX is right back at the lows of last month, which also occurred during OPEX week. Funny that.

And now everyone is getting bullish again as the $VIX gets crushed. History though suggests that volatility will return following the OPEX week into month end. But don’t worry, the Fed is meeting at the end of the month, ready to cut rates again. And so the program continues.

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Categories: Market Analysis

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