With the exception of the Russell 2000 (my personal favorite index) all equity markets that have listed volatility trading available were higher last week. The leader of the pack was Brazil putting up a gain of just over 3.5%. The result was a 4% drop in the CBOE Brazil ETF Volatility Index. Also, the futures were lower across the board, but the curve is still in a bit of backwardation. You would think after a three and a half percent week we would be looking at contango, I guess the fear hasn’t completely gone away but those that have not bought into tapering impacting emerging markets negatively were rewarded nicely last week.
The collective emerging market sector was up 1.41% based on performance of the iShares MSCI Emerging Markets ETF (EEM – 38.73) and VXEEM was down over 8%. The VXEEM curve is a bit more inverted than VXEEM so there’s a specific emerging market (China?) that’s causing a bit more concern there. Another indication of a little EEM bearishness came in the form of a bearish spread trade I heard about on Thursday. There was a seller of the EEM Feb 39.50 Calls that then purchased the EEM Feb 40.50 Calls for a net credit of 0.20. This trade risks 0.80 for a potential profit equal to the credit of 0.20 if held to expiration on February 21st.