On Friday, the week ended on a record-breaking note as U.S. stocks reached new ?heights. This came on the?Dow Jones Industrial Average (DJIA) jumping above 15,000 and the S&P 500 index (SPX) rising higher than 1,600.
The VIX closed at 12.85, down 5.45 percent.?
For the VIX, it’s had its own interesting behavior lately as noted by Barron’s Brendan Conway on Friday. Citing Bloomberg, Conway wrote that the usual inverse pattern between the VIX and stock prices reversed course late last month as the VIX moved for four consecutive sessions, the same way as the S&P 500?(SPY); this halted on?April 29 ?after three increases and one fall.?
This has happened before, back in February 2007.
Bloomberg’s?Nikolaj Gammeltoft?and?Whitney Kisling offered the following explanation thanks to some help from Andrew Greeley of Acorn Derivatives Management Corp.:
“Options prices usually fall when equities gain because the optimism driving share prices reduces the demand for protection against losses. That relationship is wavering as traders become less certain about the direction of stocks after a four-year, 134 percent advance, according to?Andrew Greeley, a senior managing director at Stamford, Connecticut-based?Acorn Derivatives Management Corp.?Dealers are charging bears more for insurance and bulls more to speculate on gains.
Normally we would expect to see the VIX continue to slide lower as the S&P 500 grinds up,? Greeley, who helps manage more than $450 million in volatility assets, said yesterday in an interview. ?But as we get more extended in the recent trend and approach significant economic reports and central bank meetings, the VIX is capturing greater interest in out-of-the-money options, both calls and puts, as people bet on more stock gains as well as buy hedges.?
What’s next for the VIX?