VIX bounced off the mid 13’s again this week before settling the week at 14.33 down almost 9%. This is a pretty significant drop on a week where the S&P 500 rose only 1.41%. It is interesting to note how often the implied volatility of SPX options will be in the 13’s and then either hold steady or bounce. Remember VIX can be an indication of SPX options being considered cheap or expensive. When VIX reaches the mid-13’s the result appears to be market participants considering SPX options cheap and then using the inexpensive environment as a buying opportunity. The result is then higher SPX premiums and a move up in VIX. Along the curve, the shift in futures prices tended to be pretty parallel with risk coming out of farther months along with the near months and the index.
VXN dropped only 3% last week as the Nasdaq-100 trailed the performance of the S&P 500. There may be more to the difference between VXN and VIX than just difference in their respective markets last week. VXN and VIX tend to move in line with each other much like their underlying markets. However, there are certain times of the year where VXN may have more influence from a seasonal factor than VIX. That time is earnings season and we are in it starting this week. That factor is earnings season which is upon us starting next week. VXN is based on volatility of an index that gets 50% of its weighting from only 10 stocks and as implied volatility of those individual stocks rises into earnings there is a corresponding rise in VXN relative to VIX.