The S&P 500 was higher and so was the VIX this past week. The S&P 500 traded in a heck of a range with a low of 1329 to a high of 1389 with the low end being hit early in the week and the high end toward the end of the week. The weakness in the S&P 500 pushed the VIX over the psychologically significant 20 threshold on Tuesday and even though the market recovered finishing the week with a very strong performance on Friday the VIX did not manage to trade lower than last week’s close of 16.27 during the whole week.
On the exchange traded product front, even though the VIX was higher, all actively traded exchange listed volatility products were lower on the week. On an interesting note, the short products were also down on the week as well. Only the hedged ETPs had positive weeks and this can probably be attributed more to the strong equity market performance than the benefits of volatility exposure.
In the option area over the previous couple of weeks the low VIX has given market participants an opportunity to buy relatively inexpensive August Calls at a variety of strike prices in the 20’s. Early this past week with the market under pressure those options moved higher. This increase in premium could be attributed to higher August Futures prices along with an expansion of implied volatility of VIX options. Even though those calls increased in price (some doubling), there was little evidence of profit taking. This means the buyers of tens of thousands of August VIX calls are holding on with the belief a higher VIX is in our future.