VIX was a bit higher last week despite the S&P 500 topping and closing above 1800. Of course rising 0.07 from 12.19 is not telling us much about what volatility traders are thinking about the overall markets. Luckily we have the CBOE Short-Term VIX (VXST) and CBOE 3-Month Volatility Index (VXV) to give us a little more market insight. Below is a chart showing the term structure curve that is created from these three indexes on a week over week basis.
VIX was basically flat on a week over week basis. However, VXST dropped on the week as did VXV which tells me traders are thinking we’ll have a smooth week or so and also there’s a little less concern about early 2014. Something else that points to a lack concern over the near term is the action in the VIX of VIX (VVIX). Below is a chart of VVIX in 2013.
VVIX applies the VIX methodology using VIX option contracts resulting in a measure of 30 day implied volatility for VIX. Friday’s close was a low for 2013 and the lowest close since May of 2008. When VVIX is low it usually means there’s been a lack of buying of VIX calls. A call option on VIX is a good way to trade and outlook that VIX is going to run up quickly or hedge against tail risk in the equity markets. Low VVIX translates to there being little concern about a volatility event pushing the market lower.
Finally, in the ETN space the long funds dropped as expected and the short ones continue to benefit from the VIX futures curve being in contango. I’m actually typing this from my hotel room in Las Vegas where the Trader’s Expo is entering its final day. I’ve either been speaking about VIX or answering VIX related questions for a good portion of the last two days. The first two guys that stopped by the CBOE booth on Thursday asked about the VelocityShares Daily Inverse VIX Short Term ETN (XIV). To be completely honest, I have not paid nearly enough attention to XIV this year and have missed out on a great story. XIV has doubled in value this year based on the lowest volatility environment since 2005. Now wonder is was the most asked about ETN during my booth duty this week.