Disclaimer: The information found on this site is meant for educational and informational purposes only. Nothing on this site should be construed as a recommendation or solicitation to buy or sell derivatives or securities or to trade any particular strategy. Trading of derivatives or securities has large potential risk and you must be aware of and accept all the risks. Past performance of any trading system or methodology is not necessarily indicative of future results. No representation is being made that any account will or is likely to achieve performance results similar to those discussed on this website. Hypothetical or simulated performance results have certain limitations and do not represent actual trading.

Wednesday, May 16, 2012

VIX Futures in Overvalued Territory!

 - With expiration settlement of May VIX Futures this morning, June VIX Futures is now the front month futures.  Relative to FVEF indicator, VIX futures is now overvalued.  In fact, very overvalued.

- The second chart shows a series of VIX front month futures prices.  The futures over/under indicator compares the VIX front month futures price relative to FVEF on a % basis.  At today's closing price of 24.40, it is 14.1% "overvalued" relative to FVEF indicator, which does not happen often.

- Now VIX & VIX futures prices are in a rising trend, and I had been predicting this rise for the past several weeks.  With uncertainties of global economic health growing, volatility is expected to continue rising, but it is interesting to see that the FVE indicator has actually gone sideways the past few days.

- The current correction, while persistent, seems very orderly--more like buyers are waiting rather than running away.  Are they waiting for a selling climax? or does the market need to rebound from oversold levels before we start to see greater price volatility in the underlying?  If we do see a rebound, VIX futures prices could drop significantly because of the overvaluation.

No comments:

Post a Comment