September means lots of fun things. The weather changes (abruptly in places like Chicago), football comes back around, and financial market participants get nervous. These nerves are not about preparing for winter or fantasy football teams, but about the markets. Everyone knows the big drops in the equity market have occurred in the latter months of the year, after Labor Day and before the Detroit Lions Thanksgiving game. Despite us all ‘knowing’ this, the S&P 500 was up 1.36%. Maybe this month will be ok.
With the S&P rebounding volatility came under pressure and VIX returned to under driving age (16) where we have become accustomed to seeing the quote. VXX and the other long related VIX ETPs came under pressure with VXX dropping over 5%. Despite being down on the week I was near the VIX pit on Thursday and over heard some buying interest in the VXX Oct 16 and VXX Oct 17 Calls. At least one trader was not lulled by the nice Labor Day week performance of the stock market.
VIX finished the week at 15.85, but the VVIX stayed at a more elevated level of 86.51. This is reflective of continued demand for VIX Call options with September and October expiration dates. Looking out to October the Oct 25 Calls is a very popular contract for those expecting a drop.