This Week in VIX Options and ETPs

VIX Exchange Traded Products

VIX ETPs had an abbreviated week like the rest of the equity world due to Hurricane Sandy. VIX was down a little over 1% on the week with stocks a bit higher. The long oriented ETPs were all down more than VIX. The November contract is at a slight premium to the index while December is at enough of a premium to cause the contango effect on ETPs to drag their prices down more than the drop in VIX or the respective VIX futures. With over two weeks until November expiration, if the shape of the curve holds this sort of headwind to VIX ETPs may persist.

VIX Options

When things finally got back up and running in the world of equities this week the reaction from VIX was pretty muted. This lack of a reaction in the volatility world to Hurricane Sandy may be attributed to the equity markets being closed for a couple of days which allowed the uncertainty regarding the long term impact of the storm to be digested.

The pit has witnessed several trades that appear to be motivated by uncertainty around the US elections or the pending fiscal cliff in the past few weeks. This week, possibly due to the storm shortened week there were more sellers on Wednesday and Thursday of premium than buyers which resulted in VVIX moving down to the lower end of the standard 80 – 120 range.

Early on Friday there was a spread trade that resulted in VIX Nov 26 Calls being sold and VIX Dec 24 Calls being purchased. After that most of Friday’s November trading action seemed to be buying November calls and the result was a strong VVIX on the day. The feeling in the VIX pit was that there were some positions being put on in front of potential volatility around next week’s election.

Finally, note the chart that precedes the standard table that goes along with this weekly blog. Average daily VIX option volume in October came in a little over 450,000 contracts a day which is above the average month in 2012, but down a bit from a very active September. The volume chart below shows the average daily VIX Option volume by month from inception of VIX option trading in 2004 –