Focus of option trading shifted over to the May contracts this past week. April is too short term of a play for hedging so the May options are more of a portfolio hedge. Checking out interest in the May options shows the VIX May 25 Calls the most popular strike with open interest of 225,000 contracts. The top five are in the table below. It seems like it was not too long ago that the highest open interest for VIX calls were strikes in the 30’s and even in the 40’s.
With VIX low and complacency abounding in the markets the volatility of VIX options continues at the low range on a historical basis. The VVIX has been hovering in the low 80s. 80 may be returning as a support level for the volatility measure of VIX option prices. Another indication of lack of concern regarding a near term equity market drop comes from April VIX option pricing. It was noted that the front month straddle and strangles were very cheap which indicates a lack of concern about a weekend event on Friday.
In the ETP space the continued relative steepness of the VIX curve along with low VIX index continues to put pressure on ETPs that focus on a long VIX related strategy. Leading the way lower UVXY was down 17.04%, TVIX lost 16.76%, and VIIX was 8.82% lower on the week. The two leading short oriented VIX ETPs (XIV and SVXY) were both up just over 9% on the week. Also having a good week was the First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH – 21.16) which was 2.57% higher on the week.