Buyers are returning to the equity volatility market, after implied volatility jumped last week for the first time since August. The Chicago Board Options Exchange volatility index, the VIX, rose to 14.68% Tuesday compared to around 12.5% at the start of last month. The VIX, however, started retracing its steps toward the end of the week and was at 13.64% Thursday, suggesting the week's earlier rise may have been a technical correction rather than the start of a trend.
Traders reported increased demand for forward-starting options and forward-starting variance swaps from players looking to take long volatility positions.
Equity volatility levels have had temporary jumps before, for example, in response to August's high oil prices and the Madrid bombing last year. In these instances, implied vol came off again in the following weeks. Analysts agreed it is hard to tell whether the volatility rise is a temporary blip or the beginning of a significant increase. Larry Chen, equity derivatives analyst at UBS in London, said, "It's too early to call."
