This Week in VIX and VXN

The S&P 500 closed on the high of the week Friday capping off a 3.62% week. For the week VIX reacted as expected dropping almost 8%. The Nasdaq-100 gained over 4% (amazing what happens to an index when a 20% component – AAPL – of an index rallies 8% in a week) and VXN dropped a whopping 12%. Finally as far as the normal volatility behavior goes, there was a fairly parallel shift of both curves.

When all goes according to plan I have to stretch a bit for something of interest. It didn’t take me too long to find a couple of things worth pointing out. First the spread between December VIX and December VXN futures is at 1.00 is below the 2012 average index spread of 1.44. With the volatility in AAPL this spread has been widened out to over 3 points in 2012.

Also, the normal behavior of VIX and VXN relative to their respective indexes there was some interesting end of week action. Neither VIX nor VXN managed to close on their lows for the week even though the underlying indexes closed on their highs. This sort of disparity leads me to think option traders are not quite buying into the rally seen on Friday. Next week will tell if they were right or wrong.