The S&P 500 bounced off the 50 day moving average and the volatility market reacted with a drop into the 16’s on Friday after testing higher levels on Thursday. The iPath S&P 500 VIX Short Term Futures ETN (VXX – 15.06) had a pretty good week and tracked the VIX performance closer than it has during some other volatility spikes. This was a function of a pretty parallel shift in the curve along with a fairly narrow spread between the October and November futures.
There was a big VIX option volatility spike that coincided with Thursday’s market action. VVIX was well over 100 during the day and settled at 93.79. This was the highest close for VVIX in over three months. VVIX settled lower at 88.71 on Friday, but still at quite a premium to this year’s average price of around 82. Back in the day 82.00 was closer to the low end of the range than the high end. I got a question about this very topic at our Options All-Stars event on Friday. I believe there are more spread trades in VIX options than pure call buying to benefit from a spike in volatility. This could be the new norm and the new range for VVIX may be more like 70 to 100 than 80 to 120 which was the typical range before this low volatility year.
As a final note, there is a new addition to the performance table below. The CBOE S&P 500 Short-term Volatility Index (VXST – 16.62) has been added to the VIX mix (I couldn’t help myself). The short term volatility index captures the implied volatility of short dated SPX option contracts and the result is a nine day implied volatility measure. A lot more information on VXST is available at www.cboe.com/vxst