On this day, 75 years ago, the Japanese bombed Pearl Harbor killing 2400 Americans and wounding 1500. The day after, President Roosevelt spoke before Congress, and what is now the most recognized  quote: “Yesterday, December 7, 1941–a date which will live in infamy–the United States of America was suddenly and deliberately attacked by naval and air forces of the Empire of Japan.” He asked Congress to declare war on Japan and drawing the US into World War II.

So let’s remember those Americans lost on that day, and those lost in wars since then.

Yesterday 422,621 VIX options changed hands and on the CFE volume was saw 194,868 VIX futures trade. Weekly VIX expiration is today but the last day to trade VIX weeklies was yesterday. As the markets make new all time highs, the VIX is trading nearly the yearly intra-day low of 11.02 (closing low 11.34) set back in August.

The term structure continues to be in contango which makes rolling costs expensive for long term holders of VIX products. The low levels of volatility are a sign the markets have come to term with what a Trump presidency would mean.

Trump is generally seen as business friendly and markets expect that softer regulations combined with fiscal spending will bode well for the US economy and financial markets. This sentiment is similarly echoed in the spread between the Russell 2000 small cap volatility (RVX) and S&P500 large cap volatility (VIX) which tends to move higher as markets move higher, and drop when markets come under pressure. The spikes in volatility shown above occurred during times of expected market stress, such as Brexit in June, US Elections in November, and the Italian constitutional referendum in December. However, with each events, the market reaction was less elevated, as described by a Bloomberg story:

“After Brexit, it took three days for markets to shake it off, with Trump it took three hours, with Italy it took three minutes,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. His firm oversees $260 million. “The outcome was not as much of a surprise as many expected it to be — markets learned their lesson.” 

The VIX lost over 11% last week, and most of the CBOE volatility indexes saw losses over a one week period.

A large trade went up this morning on the VIX as a trader bought 18,200 VIX 18Jan17 16 Calls at $1.43 and sold 36,400 VIX 18Jan17 18 Calls for 1.07 for a total net credit of $0.71. The trader believers the VIX will trade below 20.00 or so by expiration.