Recently we pointed to a steady rise in the CBOE Volatility Index or VIX amid the slow melt-up in equity indexes, namely the S&P 500.

Last Friday, at the first hint of bad news out of Europe regarding the Greek debt situation, equities opened well off of recent highs and the VIX spiked 11.59% on the session, closing at 20.79 after nearly reaching 22 intraday. [ETF Chart of the Day: VIX]

We highlighted large inflows in VelocityShares 2X VIX Short Term ETN (NYSEArca: TVIX) last week in the $14-$15 a share range, and the exchange traded note furiously gapped higher on Friday, rising over $21 a share at one point before settling in at $19.05 to close the session (a gain of 17.04% on Friday). [VIX ETFs Bounce as Stocks Near 2011 High]

Relatively low levels in the VIX coupled with recent four-year high levels of VIX futures short interest and a measured equity markets’ rally in 2012, all seemed to line up on Friday amidst the first notable equity pullback in recent weeks. We have also pointed out growing levels of put volumes across broad based index ETFs such as SPDR S&P 500 (NYSEArca: SPY) and iShares Russell 2000 (NYSEArca: IWM), and this type of downside protective put buying has been going on for several weeks now, seemingly under the radar as equities, with the exception of last Friday, have rallied continuously.

Interestingly, and likely not coincidental, one of the ETFs that saw immense asset inflows last week was PowerShares S&P 500 Low Volatility (NYSEArca: SPLV). The ETF is based on a subset of the S&P 500, concentrating on equity names that have exhibited the lowest realized volatility in the previous 12 month period. Currently, top 5 holdings of SPLV are SO, PG, KMB, K, and ED.

It seems feasible that at least some institutional players have grown wary of the unabated equity rally in 2012 and are finding more appeal in “low volatility” names amidst the recent spike in the VIX and any potential setbacks in equities that may lay ahead.

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