Reality returned to the equity market and the S&P 500 slipped back under 1700. The drop of over 1% resulted in VIX moving higher by almost 18%. However, the spillover effect to the long VIX strategy ETPs was not nearly as dramatic. The heavily traded iPath S&P 500 VIX Short Term Futures ETN (VXX – 14.20) rose over 4% on Friday, but finished the week up only 2.6%. This was a function of two common pricing factors for VXX. First, the October and November VIX Futures, which constitute the VXX portfolio, were only up 3.33% and 1.24% for the week. Also, the VIX curve remained in contango which also places a drag on VXX performance.
Longer dated volatility was higher, but not nearly to the extent as VIX. The CBOE S&P 500 3 Month Volatility Index (VXV – 16.04) was up 4.70%. Also, of interest was an actual drop in the VIX of VIX which lost about 2.5%. This indicates that despite higher VIX the option players were not adding to long positions. There has been a lot of early option positioning for the treacherous September – October period and despite higher VIX last week there was not much adding to those positions.