SPX futures are off roughly 18 points to 1913 as earnings take center stage. Both BP and UBS are dragging equities lower on disappointments. Both Credit Suisse and JP Morgan have cut 2016 year end estimates for the S&P 500. Crude is off nearly 4% while gold is modestly lower. The cash VIX ended 19.98 yesterday. The VIX futures are all higher before the open with the front three VIX futures in backwardation.
Over the last two weeks, implied volatility levels of the S&P 500 have dropped back to levels more consistent with “current economic data”, according to Goldman (VIX futures term structure graphed below). Goldman believes fair VIX levels to be in the high-teens to low-20’s given where we are in the economic cycle. Two weeks ago, the VIX futures were disseminating much more short term fear/stress as the futures moved into a very pronounced backwardation out to Jun/’16 as you can see by the green line in the graph. Last week, after the BOJ announcement, oil rallied as did the equities in Japan, China, the US and Europe easing fears. Yesterday, the VIX futures all closed within a point of each other in a very flat structure between 21 and 22.
The CBOE announced yesterday that it plans to list S&P 500 Index Weeklys that expire on Wednesdays beginning February 23. These will be similar to the Weeklys that expire on Fridays, except that they will be listed on Tuesday and expire on the Wednesday of the following week. The reason behind this is to have options that align with VIX Weeklys futures expirations as well as the typical Wednesday expiration for the original VIX futures. Weeklys have been a hit since the CBOE introduced them back in 2005.