Things were pretty crazy last week at The Options Institute last week with a wide variety of groups visiting and instructors running from one place to another. Marty Kearney is slaving away in Las Vegas right now, poor fella. When I am consumed with my duties at work I tend to lose track of the day to day changes in the markets. Preparing these blogs helps get me back up to speed each weekend and my work pattern involves putting together all the graphics for the tradable volatility indexes at CBOE and the checking on the underlying markets. I was really surprised at the week over week performance of the S&P 500, which was basically flat, after first looking at the VXST-VIX-VXV-VXMT term structure curve below.
VXST was up almost 20% on a week over week basis. Some of that performance is attributable to the three day weekend effect that results in VXST having somewhat of a tailwind the first day after a three day weekend. However, by the end of this past week VXST was almost in line with VIX and approaching trading at a premium. A premium for VXST versus VIX would indicate that market participants have some short term concerns about the direction of the stock market. Those concerns are usually brought on by current market action specifically that the S&P 500 is already trading lower. So when I saw that the S&P 500 was down on 0.08% on the week I was a bit surprised. I know Friday was an ugly day for stocks, but the week over week action does not seem to warrant VXST close to parity with VIX. It just may be that volatility players think more downside price moves for the stock market is imminent.