The streak is over for the S&P 500 as the market took a breather and blamed it on data out of China, a big drop in the Japanese market, and a possible slowing of Fed activity. On the last one, I’ll believe it when I see it of course I’m not sure exactly how one could ‘see’ the end of a QE program.
With nervousness in the equity markets VIX reacted as expected rising over 12% on the week. It was noted that the new front month June futures were at a premium of 2.65 last Friday and that the premium shrunk to 1.51 this past week. This was a result of the front month futures not rising as much as VIX. As the most popular (by volume) volatility ETPs are based on the performance of these futures the rise in the unleveraged ETPs was in the low single digits on a percentage basis last week. The inverse ETPs took it on the chin as did the low volatility funds that tend to follow the performance of their respective markets.
The option arena saw some interesting activity early in the week. The typical price action on expiration Monday has resulted in a drop in the value of at the money and near at the money options that begin to react to the impending Wednesday AM expiration. Monday was a volatile day for the equity market and May VIX hovered around the 13 range. The at-the-money 13 straddle went out on Friday at 0.95 and only had 0.10 of compression Monday morning. Despite holding up value, that straddle was worth 0.17 based on Wednesday’s VIX settlement of 13.17.
Anxiety in the markets during the week pushed VIX higher and VVIX was stronger as well based on some demand for VIX calls. VVIX was actually down for the week on a Friday to Friday basis, but made its way to the 90’s during the week. When VIX made it to the 15’s on Thursday the pit actually experienced a handful of sell orders in June VIX Calls. Specifically there was a seller of the VIX Jun 16 and VIX Jun 17 Calls. This managed to put pressure on VVIX and the June futures as well.