The nature of the CBOE Short-Term Volatility Index (VXST – 11.23) putting up lower lows when SPX volatility comes under pressure was on full display last week. VXST finished the week down over 19% despite making efforts at heading higher early in the week. Friday was particularly tough on VXST with the index dropping over 10% in a single day.
Despite the spot index being at very low levels, the VXST curve is showing some worrisome signs for the next few weeks. Note the May 28th future price which is represented by the far right data point on the red line below. The May 28th VXST future price settled Friday at 15.20. This is actually higher than where the May 21st future closed the previous week and is almost a 4 point premium to the closing price for the index. We do not have too much history to work with regarding VXST futures versus the index, but that sort of premium indicates the market may be expecting a quick rise in VXST over the next few weeks. This can be translated into a bear case for the S&P 500 in May.