Who would have thought that a country 93% of Americans cannot pick out on a map would have the impact that Cyprus did on the S&P 500 and subsequently VIX this past week. Early in the week the S&P 500 was off well over 1% relative to Friday’s close. By the end of the week most of that loss had been recovered, but VIX managed to end the week 20% higher. Admittedly last Friday’s close of 11.30 was a pretty low base to rally 20% from, but also note VVIX which has been in the 70’s for a majority of days over the past few months is now in the low 90’s. Both indicate that there is some near term risk concerns being priced in by the markets.
This past week was also March VIX settlement which came in at 12.64. What was interesting about this week’s settlement was how some option traders seemed to handle the market action around expiration. On Tuesday the bulk of option volume concentrated on March contracts that expired the following day. Most of the trading was also on the call side with VIX trading higher. Often this close to expiration there will be several rolling transactions where positions very close to expiration are closed out and similar positions are opened up in the following month’s contracts. On Tuesday it appears there were several March positions closed, but the other side of the roll appeared to be executed the following day. This was some good trading by some large players in VIX as Wednesday spot VIX dropped from 14.29 the previous day to 12.67.
In the ETP space VXX was up by only about 2% despite the rise in VIX. Note that VXX focuses on the front two month futures contracts. The portfolio rolled from March / April to April / May this past week. Both April and May were at large premiums to VIX going into last week. As VIX rose and April became the front month the April futures stayed under pressure. May also did not move up much relative to VIX. The result here muted performance from VXX.