VXST appeared destined to flounder around this week and then Thursday came along. As with just about every spike in near term volatility indexes over the past year or so the spike was short lived and despite rallying almost 20% on Thursday VXST finished the week at 11.00 down 1.5% for the week.
The futures curve remains pretty steep despite (or maybe because of) the low level of the VXST index. The picture is pretty similar to last week and the high level for the May 28th future relative to May 21st narrowed some, but still sticks out like a sore thumb to me. We’ll see if that extra premium is justified.
Finally, on Thursday as VXST was rallying one trader took advantage of VXST moving up and sold 500 of the VXST May 21st 18 Calls for 0.20. With VXST closing at 11.00 on Friday this trade is safe as long as VXST does not settle over 18.20 on Wednesday morning. That’s a 65 percent move which is not unheard of, but barring some sort of unexpected event over the weekend is a bit unlikely. Again, it could happen and has happened historically, but a perfect storm that pushes the S&P 500 down in a quick and dramatic fashion would be needed.