I thought implied volatility, as well as the VIX, primarily increase due to increases in the underlying asset's volatility, as well as the options themselves being bid up because more people were buying that usual.
For instance, during an IV crush, usually people are selling the contract heavily. When IV is building, I thought people were buying the contract heavily.
Today, I was watching a spread and noticed a leg was becoming more expensive than predicted, yet the volume was low, the open interest was also low, and the VIX was unchanged. It wasn't just this contract; the entire side of the book for that month's contract had elevated volatility.
I don't understand how this happens. Could someone shed some light on how the IV increases without people bidding things up?
There were no catalyst events coming up, and the underlying asset wasn't a corporation's stock. It was an ETN on an index.
My next clue would be that the IV is based on historical volatility, such as when things start moving in one direction that things can really swing, so the pricing of the contracts were fixed to include this expected demand for their premium. But I could also be way off.