The market was sort of on hold for the first three days this past week based on the Independence Day holiday disrupting the normal flow of trading. In addition there was sort of a pause in place before the European Central Bank interest rate decision that came out while many of us were taking the day off. Anyone that happened to check global markets would have noted a very favorable reaction to the ECB announcement with global stocks rallying and US futures markets following them higher.
On Friday, US stocks opened higher and VXX opened lower. After a swoon in stock prices VXX appeared headed back to the 20’s but then stocks rebounded strongly and VXX closed on the lows of the day. This was the first close under 20 for VXX since June 10th. The other ETPs that focus on the short dated futures markets were under similar pressure on Friday and for the week. An interesting aberration to the drop in ETNs was VXZ which currently has long exposure to October, November, December, and January 2014 futures contracts. That end of the curve has held up quite well as there continues to appear to be a premium for volatility exposure toward the end of this year.
On the option side of things it appears the larger players are moving their focus out to August. On Wednesday things were fairly quiet but one of the bigger orders to hit the pit was a buyer of August 20 – 24 Call spreads which appeared to be a play on expected higher VIX moves over the summer. The drop in VIX on Friday that accompanied the rise in stock prices also pushed VVIX down below 80 for the first time in almost two months to close at 77.41.