VIX rallied 27% this week which was the strongest weekly performance since September 2011. Long ETNs benefitted from higher VIX with VXX officially rising almost 9% and VXZ, which focuses on the 4th through 7th month VIX futures up a little over 3% on the week. I throw the term ‘officially’ in there as VXX was up another 4% in after-market trading to 36.89 as investors and traders flocked to volatility ETNs based on fiscal cliff fears and headlines after the market close. A quick check showed all the long oriented VIX ETNs were much higher after 3:00 central time Friday.
In the hedged and low volatility space note the performance of EEMV which represents low volatility stocks in emerging markets. Emerging markets have been strong the past couple weeks, possibly as an investment alternative to the US. It is possible the thinking is that fiscal cliff issues are going to impact the US and not have any true ripple effect to other markets.
In the VIX option arena traders spent most of Thursday and Friday either initiating positions that would benefit from VIX moving up or down. I spoke to one market maker on Thursday and his comment was he would see a bearish trade and right after it a bullish trade. I took a look at the VIX Put-Call Ratio for Thursday and Friday which were both days that saw lots of fiscal cliff rumor and headline activity. Both days the ratio was closer 1.00 than on an average day. The average VIX Put-Call Ratio in 2012 has been 0.60 which means for every 600 VIX Put Options there will be 1000 VIX Call Options trading. Activity is normally higher in VIX Calls than puts as indicated by the ratio. On Thursday the VIX Put-Call Ratio was 0.79 and on Friday it was 0.87. This indicates more puts trading relative to calls than on average and backs up the comment that came to me from the pit. Also, a good portion of the volume was in January options, the nearest expiration and the one you would expect to have the most price action based on the continuing saga known as the Fiscal Cliff. Finally, VVIX ran up to 104.72 on Friday to a level not seen in some time. This is an indication that there was much more buy than sell pressure in VIX options to close out the week.