We seem to be involved in a trend as the S&P 500 Index was up and the VIX was down last week. The S&P 500 Index climbed to the highest level since the first trading day of April closing the week 12 points higher at 1418.16. The result for the VIX side of the equation was a drop of over 8% to 13.45 for the week. This is a level we have not witnessed for VIX since June 2007. With low VIX levels we are starting to see headlines asking, “How Low Can VIX Go?” Time will tell where and when the VIX will bottom out, but historically the all-time VIX low was in December 1993 at 9.31. So it may not go lower, but it has been lower.
Even though VIX was down dramatically, the ETNs based on VIX did not drop nearly as much as the spot index. This is a function of what they are actually tracking which is a portfolio of VIX futures. For example the majority of long VIX ETNs and ETFs on the list below (VXZ being an exception) track a portfolio invested in August and September VIX futures contracts. The contract weighting for the index that several of these products track favors the September contract as August expiration approaches. August expiration is next Wednesday resulting in the majority of influence on price changes in the ETPs coming from the September contracts. The September VIX was down less than 2% last week and that explains why the VXX, TVIX, VIXY, VIIX, and UVXY lost less value than VIX. The performance of VXZ was positive on the week as the underlying index for VXZ focuses on the 4th, 5th, 6th and 7th month VIX futures contracts. Two of those contracts were higher and two were lower last week resulting in a positive week for VXZ.
Although VIX was under pressure on the week, the volatility of VIX options which is represented by VVIX rose significantly. VVIX has a range between the 80’s and 120’s and is now around 95, which is lower than average, but a large move off last week’s close around 85. With August expiration next week, the focus seems to have moved to September option trading. Specifically, there appeared to be a large buyer of VIX Sep 24 Calls earlier in the week.