This Week in VIX Options and ETPs – 8/16/2013

The S&P 500 lost just over 2% on the week and the result was a higher VIX.  The first interesting tidbit about VIX was on Friday it was lower despite a lower S&P 500.  The Friday effect, along with lack of follow through from Thursday’s big selloff attributed to VIX and the S&P 500 being in sync for the day.  What I tell people (when they ask) is to watch the front month future on Fridays instead of the index.  The front month future was higher despite VIX closing lower.  August VIX settled at 14.45, a slight (0.08) premium to the index.  August VIX futures and options cease trading on Tuesday and settle on the open Wednesday.

Speaking of settlement the at the money straddle is always worth keeping an eye on as expiration approaches.  On Tuesday (when VIX was in the 12’s and 13’s) the VIX Aug 13 Straddle was sold for 0.85 which targets a settlement between 12.15 and 13.85.  Sellers may be getting a bit nervous with VIX at 14.37 and the August contract at 14.45.  On Thursday the at the money straddle was suddenly the VIX Aug 14 Straddle which was being sold for 1.15.  These sellers have a little more room for comfort come Wednesday settlement at this will be a profitable trade between 12.85 and 15.15.  With VIX higher, VVIX worked up to the mid 80’s this week which is an area not seen by the VIX of VIX since late June.

VIX Straddle Payoffs

 

Finally, the ETP space behaved as expected with long VIX strategy funds rising on the week and the short funds losing ground.  I found the low volatility fund performance a bit head scratching as USMV and SPLV were both down more than the S&P 500.  It could be an indication of a broad market decline that may continue.  It is definitely and area to do a little more work on.

VIX Options ETNs