This Week in VIX Options and ETPs – 7/26/2013

The S&P 500 gave all it had to finish in the green for the week but time ran out Friday afternoon and the SPX ended the week down 0.03%.  I can just hear Mortimer Duke screaming, “Turn those machines back on” for five more minutes to give the S&P 500 another notch in the weekly winning streak.  VIX actually ticked up slightly for the week despite the flat market action.  There are rumblings of concerns about August and September bringing higher volatility to the markets mostly based on historical occurrences.  Maybe those concerns are working their way into VIX.

At least one trader in VIX Options expects higher VIX levels in September.  Someone came in on Thursday and sold over 50,000 of the September 14 Puts for an average cost of 0.54.  This appears to be a new position with the expectation of VIX at higher levels over the next couple of months.  As the week wore on, VVIX worked higher after closing Monday at 72.49.  This may be an early indicator of higher volatility around the corner.

Despite higher levels for the spot VIX index, long oriented VIX exchange traded products were lwer on the week.   The main culprit of this disassociation between VIX and the long ETPs was the August and September VIX Futures which were lower by 3% and 4% respectively.  The futures catching up with the downside move of the index resulted in a 4% drop in VXX and over 8% for the leverage long volatility funds.

VIX Options ETNs

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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