Old VIX Record Low Illustrates Push For Income: Chart Of The Day

Record lows for a barometer of U.S. stock volatility may have more to do with investors’ search for income than anything else, according to Michael Shaoul, chief executive officer of Marketfield Asset Management LLC.

The CHART OF THE DAY displays the Chicago Board Options Exchange OEX Volatility Index, also known as the old VIX. Two days ago, the index fell to 8.86, its first close below 9 since calculations started in 1986. The indicator is based on prices paid for options on the Standard & Poor’s 100 Index.

“I would resist the urge to simply call this ‘complacency,’” Shaoul wrote yesterday in an e-mail. “The dominant view is that volatility is there to be sold as an alternative to paltry bond returns.” The New York-based investor tracks the old VIX for a weekly newsletter.

Pacific Investment Management Co.’s theory of the “new neutral” led traders to speculate that the money manager sold S&P 500 options in April and May to benefit from stable prices, according to four people who heard about the trading and asked not to be named. Pimco’s chief investment officer, Bill Gross, declined to discuss specific trades in an interview last week.

“Like anything else on sale, you should be a buyer,” Shaoul wrote in referring to stock and index options. “A rise in yields combined with a sharp increase in equity volatility would be a very uncomfortable ride for those involved.”

The old VIX dropped to less than 9 on Dec. 22-23, 1993, and Jan. 24, 2007, and closed just above the threshold in each case. The indicator was supplanted by the current VIX, linked to S&P 500 options, in 2003. Yesterday, the old VIX rose 1.52 to 10.38.


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