| NEW YORK, March 11
NEW YORK, March 11 The VIX, Wall Street's
favorite measure of investor anxiety, fell on Monday to levels
not seen since April 2007, extending a decline that suggests
markets will stay calm.
The CBOE Volatility Index dropped 7.2 percent to
11.69, reaching a level not seen since April 2007 as U.S. stocks
have extended gains, putting the broader S&P 500 less
than 1 percent from an all-time closing record high.
Some of Monday's move relates to the monthly change in the
contracts used to calculate the VIX, so the decline should be
read with a bit of caution.
The drop was notable as it came on a day when the S&P 500
has been little changed, lately up 0.2 percent. Typically, the
VIX has an inverse correlation to equities, falling at a similar
rate to a rise in broader indexes.
The VIX Index, a 30-day risk forecast of market volatility,
is calculated using the midpoints of the bid/ask spread from a
strip of near-term S&P 500 index options.
"It's very unusual since it is dropping at the same rate
that it has on days when the S&P is up three or four points,"
said Donald Selkin, chief market strategist at National
Securities in New York. "That indicates a certain amount of
investor complacency, and the lower it goes, the more it seems
like there is an upside cap on the market."
Equities have been on a tear so far this year. The Dow hit
another record intraday high on Monday and has gained 10.2
percent so far in 2013. The gains have come on strong corporate
earnings. The stock market's advance over the years has been
driven by accommodative monetary policy from the Federal
Reserve, despite concerns over U.S. government gridlock and
overseas economic weakness.
Some of the day's decline can be explained by "a quirk that
happens every month in its calculation," said Bill Luby,
publisher of the VIX and More blog in San Francisco.
As the market approaches the coming expiration of March SPX
options on Friday, the calculation of the VIX changes. As of
Monday, the VIX is now calculated using prices of April and May
SPX options contracts, instead of March and April contracts used
last week, according to the CBOE.
As stocks have rallied, futures activity shows traders have
been building a net short position in VIX futures
over the last several months. That means they expect the VIX to
continue to decline. According to Friday's data from the
Commodity Futures Trading Commission, speculators have a net
short position of about 80,000 contracts, less than the high of
110,000 reached in early December.
"The move in the VIX could suggest investors anticipate
further gains, but the level of 10 is a cap. If it gets that
low, we'll very likely have a correction," said Selkin, who
helps oversee $3 billion in assets.
Action in VIX-related securities was also active. The iPath
S&P 500 VIX Short-Term Futures ETN, which tracks
short-term futures contracts on the VIX, was down 3.9 percent at
$20.78. It has tumbled more than 33 percent so far this year.
The exchange-traded note has about $1.08 billion in assets,
according to Lipper data, down from $2.10 billion at the end of
August 2012. At the same time, volume has accelerated, with the
average trading volume swelling from 7.8 million over the past
50 days to 11.1 million over the past 10.