When $VXST Crosses Above $VIX

By Lawrence G. McMillan

In our last issue, we discussed the newest volatility product – the futures that have recently begun trading on the Short-Term Volatility Index ($VXST). One of the things that arose from that discussion was that $VXST “overshoots” $VIX on both the upside and the downside. That is, in periods of high volatility (spike peaks, for example) $VXST rises to higher prices than $VIX does. Conversely, in periods of low volatility, $VXST falls farther than $VIX does. At the current time, the latter condition exists – and has existed since February 7th. During that time, $VXST has been trading below $VIX.  

Eventually, volatility will increase, and $VXST will cross above $VIX.  What implications does that have for stock prices and volatility?

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