Unusual Volatility Index Divergence
Tue, Jul 13, 2:22 AM ET, by Bill Luby
Since I have not seen this mentioned elsewhere, I thought I should point out that there was an interesting divergence in the major U.S. volatility indices today. As the chart below shows, both VXO and RVX posted substantial gains, up 5.7% and 4.5% respectively. The other three major volatility indices declined, with VXN down 1.9%, VIX down 2.2% and VXD down 3.6%. With no obvious gaps in any of the charts nor a single index outlier, this does not appear to be an instance of bad data. While correlations among these five indices run in the 97% - 99% range with divergences largely accounted for by different market capitalizations, the fact that the two gainers were the large cap VXP and the small cap RVX muddies the waters even more. Frankly, I am a loss to explain the discrepancy. The drop in the VIX futures and VIX ETNs (VXX and VXZ) suggests to me that perhaps VXO and RVX were hit with a similar technical glitch. Anyone care to venture an explanation? For more on related subjects, readers are encouraged to check out:
[source: Yahoo.com]
Disclosure(s): neutral position via options in VIX at time of writing
SDI Glossary: "Option" Definition
SDI Glossary: "VIX" Definition
SDI Glossary: "Volatility Index " Definition
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