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August 23, 2012  Thu 2:27 AM CT

VIX: SEE CHART GET CHAIN FIND STRATEGIES

The VIX and the S&P 500 both inched higher yesterday as realized volatility remains extremely low.

The volatility index, which measures option premiums on the SPX, ended the day at 15.11. At one point early in the session it fell below 15, but then pressed higher as equities retreated. The SPX was negative for most of the day, only to finish up 0.32 points to 1413.49. Based on trading in the last 10 days, the market has been moving less than 4 percent on an annualized basis.

August futures on the VIX settled at 15.13. The new front month September contracts inched higher by 1.6 percent to 19.05. This is a bit of a surprise given the already large premium in those futures. The October futures gained even more, up 0.35 to 21.2.

It's important to remember that VIX options at each month price off their respective futures contracts. Short-term exchange-traded products, like the VXX and TVIX, are based on those futures. A big increase in volatility is already priced in, so those contracts and ETPs will lose value if it doesn't occur.

VIX futures have been active, successively establishing new open interest records over the last four days. The options have also been active. More than 660,000 traded on Wednesday, 403,000 of which were calls. The VXX options traded 144,000 contracts, with 81,000 calls.

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