With global economic risk taking a break or being exhausted from two years of worry about what’s next in Europe risk came out of the markets in the form of lower VXEEM and VXEWZ on the week. Also, EEM was up over 1% on the week which also contributed to a drop in implied volatility of EEM option contracts. VXEEM was down almost 5.5% to 23.90 which is the lowest level since late April. The August contract dropped in line with VXEEM losing about 5% to close at 25.50 which is the lowest closing level ever for the August contract. The September contract also settled at an all-time low reaching 27.60 on Friday.
VXEWZ was lower by only 1% which was the lowest drop for any of the four tradable equity market tradable volatility indexes. This small drop may be attributed to EWZ performance last week which was basically flat on the week despite a large rally on Friday. The EWZ exchange traded funds is a proxy for the Brazilian stock market and the Brazilian economy has been exhibiting a slowdown this year which has kept EWZ under pressure. Bearish EWZ performance results in a higher VXEWZ and higher volatility of EWZ options relative to EEM options.