If Friday was a pre-holiday noon (central) close we may now have closed above that phychologically significant 1400 level. However, it was not and the market rallied from lunchtime to close the week above 1400 and VIX went in the opposite direction (as it usually does) with the result being the lowest close for VIX since late March. A 14 handle means there’s some real complacency in the markets. I recall when the summer doldrums lasted three full months, but 2008 – 2009 sort of ruined that for those that like to relax and also ruined things a bit for traders that thrive on volatility.
In the VIX option world it was noted that seasonal buyers of VIX call options usually show up in early August. However, before this week they had not been coming around. This changed on Monday with a couple of very large ‘rolling’ transactions where August and September options were sold and October and November options were purchased. Later in the week some buyers of August Calls showed up with a focus on the VIX Aug 18 and VIX Aug 23 Calls. Also late in the week there was a seller of VIX Aug 15 Puts which would also be considered a bullish strategy. Those options are priced off the futures, but the spot index dipped below 15 late Friday which results in those puts being in the money if VIX stays at current levels between now and August expiration in a week and a half.
Also of note on Monday VXX Sep 10 Calls were on the list of volatility movers. This may have been caused by buyers hoping for a VXX bump based on a potential reverse split. Time will tell what may happen next to VXX, but for the mean time VXX continues to drift lower in this low VIX environment.
All long VIX related ETNs on the list were down as would be expected with the VIX dropping over 5% on the week. The hedged equity market ETNs were mixed with the domestically focused USMV down slightly and the EEMV focusing on emerging market equities hedged with emerging market volatility was up slightly. VIX was down 5.75% and VXEEM was down 4.14% which may explain the divergent performance. Finally, the two inverse volatility ETNs were both higher based on the drop in VIX this past week.