VIX: Cheap or Expensive?

While the CBOE Market Volatility Index, or VIX, closed near the low end of its recent volatility regime at 12.23, the skew on the VIX, which measures the price of VIX calls to VIX puts, rose to a six year high, according to

. In the article, Bloomberg notes that last week, options betting on a 10 percent rise in the VIX cost 19.1 points more than puts with strike prices 10 percent below the VIX's level, three-month data compiled by Bloomberg show. That marked the widest spread since July 2006. While the skew on the VIX may be at an elevated level, a different measure compiled by the CBOE is showing a less extreme picture. The

which measures a similar comparative of call prices to put prices, closed at 121.54, just slightly higher than the historical norm of 115. According to

Delta Derivatives

, the skew of the VIX normally steepens considerable as the VIX approaches low levels such as currently seen, since the VIX has a historic lower bound around the 10 level. They go on to say that with the VIX trading near 12, option prices on the SPX are comparatively cheap. especially given that the S&P 500 is just 1.5 percent off all time highs.