This Week in VIX and VXN

Both the S&P 500 and Nasdaq-100 indexes were exceptionally strong this past week and reached levels not see in some time. The result was a dramatic drop in just four days for both VIX and VXN. A little bit different this time around were corresponding drops in several of the near dated futures markets. In fact the September VIX future contract was off over 20% on the week while VIX was 17% lower. This small disconnect occurred in the VXN trading arena as well. VXN was down around 16% on the week while the September VXN future contract lost close to 17.5%. September expiration is approaching and this sort of price migration is common, but there are a couple of potential equity market moving events next week that if bearish for stocks could result in a dramatic move up in volatility. The compressed premium between September futures and the spot indexes makes a short term bearish equity market bet attractive using these contracts. Farther out on both curves the direction matched the underlying indexes and all futures dropped, but in typical fashion the farther out the expiration, the less the magnitude of the drop.

Also, if you have interest in the VIX options, Exchange Traded Notes, and Exchange Traded Funds I posted a review of those markets last night –

http://www.cboeoptionshub.com/2012/09/07/this-week-in-vix-options-and-etns-by-russell-rhoads-cfa-2012-09-07-6-30/

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