This Week in VIX Options and ETPs

This past week the S&P 500 rose almost 2% on the week and in a strange twist VIX was higher on the week as well. Friday’s action contributed to a corresponding rise for VIX on the week as it appeared portfolio managers may have been in the market for portfolio protection through buying SPX puts. This sort of demand could be responsible for a jump in VIX. What was also interesting in the last week and especially on Friday was the increase for VVIX as well. VVIX was up 10 points on the week, gaining 5 points on Friday. This increase in the implied volatility of VIX options may also be attributed to an increase in hedging activity through the purchase of VIX Calls.

Although VIX gained on the week, with the exception of the September futures contract, VIX futures lost ground. That combined with the continued relative slope of near month prices put pressure on VXX along with the other long volatility exchange traded products. VXX was down 2.44% while VXZ dropped a staggering 7.67%. This relative under performance of VXZ relative to VXX would normally be associated with a spike on the short end of the VIX curve or possibly from the curve going inverted. However this drop in VXZ relative to VXX was due more to the farther dated

VIX futures dropping more than the near dated futures.

The hedged and short volatility exchange traded products were both higher on the week. Emerging markets were higher on the week which translated to a higher EEMV and the US stock market strength was able to push USMV slightly higher on the week.

VIX Option activity started to shift focus to October as September expiration is creeping up on us. Rolling activity and new positions in October expirations and beyond on Tuesday pushed VIX option volume to a record day of 1.22 million contracts. Dec 24 Calls, Nov 18 Puts, Sep 20 Puts, and Oct 26 Calls all traded over 100,000 contracts individually that day. A specific trade that got some attention this past week was a large buyer of VIX Oct 30 Calls and subsequent seller of Oct 35 Calls. This spread was done for anywhere between a 0.10 and 0.16 and could pay off quite nicely if a double in VIX occurs between now and October expiration.