Last week the S&P 500 shook off all uncertainty, concerns, and fear regarding equities and put up the best week of 2014. Of course there have only been six weeks of trading in 2014, but over a 2% rise in the equity market is definitely something to get excited about. Last year when the stock market rose about 30% we only had seven weeks where the stock market rose 2% or more. My math brain just realized that means that half the upside performance in 2013 came during seven of fifty two weeks. Now I just need to figure out how to identify those weeks ahead of time.
With the S&P 500 so strong we had a pretty dramatic drop in the level of volatility. The VXST – VIX – VXV – VXMT curve dropped across the board on a week over week basis. However, sometimes the week to week change doesn’t tell the whole story. Thursday morning we awoke to the equity market being under pressure, which lasted about thirty minutes into the trading day. I added an extra curve to the chart below that shows the opening prices (red line) for the four respective volatility indexes on the open Thursday.
Coincidentally Thursday was also the first day of trading for the CBOE Short-Term Volatility Index (VXST) futures. Between Thursday’s open and Friday’s close VXST dropped from 14.27 to 10.84. I am well aware that the weekend effect and VXST calculation methodology caused a big portion of the drop, but still – this is fun index to watch (and maybe trade too).
Last week in this space I noted all the hype surrounding the VelocityShares Daily Inverse VIX ST ETN (XIV – 32.85) replacing the iPath S&P 500 VIX ST Futures ETN (VXX – 41.95) as the volatility related exchange traded product with the most assets under management. All those new buyers (and old owners) of XIV were rewarded handsomely last week as the two short VIX ETPs (XIV and SVXY) gained over 8%.