This past week VIX was quoted at the lowest levels seen before the financial crisis of 2007 and VIX continues to spend time in the 13’s. The low level of VIX has been getting a lot of attention, but VVIX has also been making some significant lows. Last Friday VVIX closed at an all-time low of 75.18. Admittedly CBOE did not start quoting VVIX until just last year, but historical data is available on VVIX all the way back to 1/3/2007. Using this data, VVIX tends to oscillate between 80 and 120. However, this range may be changing as VVIX has spent many days with a 70 handle over the past few weeks.
Long ETNs have been under pressure due to low VIX and a return to the typical shape of the VIX curve. The pressure on these will continue until we get the next pop in volatility that inverts the curve and pops the exchange traded funds. VIXH and USMV both benefitted from the S&P 500 trading up 0.40% this week. VIXH is of particular interest as it matches the S&P 500 performance, but has that tail hedge in place for when the next volatility event pops up.
In VIX option trading January expiration is next week. Typically at this point the trading focus would be on February options, however, this time it is different. Traders seem to be looking past February to March options. The next drama to come out of Washington, DC is going to be the debate over the debt ceiling which will probably come to a head after February expiration, but before March. Because of this March call options have been active. A couple of trades of note last week – on Friday there was a buyer of the VIX Mar 25 / 35 Call Spread paying 0.595 and on Wednesday there was a buyer of the VIX Mar 20 / 30 Call spares as well. Both those trades need a good volatility spike to payoff.