The S&P 500 was down just over 1% on the week and VIX bounced back up from threatening to visit single digits. VIX went out last week at 11.98 and tore through the 12’s to land solidly in the mid-13 range. The NASDAQ-100 (NDX) was down on the week as well losing a little less than the S&P 500. However, the rise in VXN was half as much as move for VIX. Due to a background that includes a stint pair trading stocks, I pay more attention to the spread between VIX and VXN that the average volatility market observer. Historically this spread (as measured by subtracting VIX from VIX was usually around 1.50. This year the average is closer to 1.00 and this week it went out at 0.21. Usually the front month futures compensate for the expectation that VXN will rise faster (or not drop as much) as VIX. That’s the case here as the August VIX Futures went out at 13.55 while the August VXN closed at 14.15 or a premium of 0.60. The chart below shows the spread between August VIX and VXN futures since the VXN contract was listed on April 22. Both August VIX and VXN futures trade through Tuesday August 20th and are settled on the market open Wednesday August 21st.
The big move of almost 12% for the VIX index was not followed by the futures. One thing I found a bit interesting was that the August contract rose 3% while the September contract was up by 3.75%. The tapering rumblings always seem to include the month of September in the commentary. Either saying tapering will or will not commence in September. (As an aside can anyone think of a worse time of year to take any action that may negatively impact the equity markets?) The fact that it will either happen or not in September is uncertainty. Watch the September VIX futures for an indication of the market’s feeling about prospects for stocks this fall. The September future rising more than the August contract is an early sign of concern.