This Week in Volatility Indexes and ETPs – 6/13/2014

The S&P 500 had a slight setback of a week with the result being a heck of a rebound in VXST and VIX, at least on a percentage basis. Of course both VXST and VIX rebounded off of what can be mildly referred to as a low base price and in the words of one smart volatility trader, “They only had one direction to go”.


The long VIX related ETNs got a nice boost from the VIX rebound with the non-leveraged long ETNs gaining about 5%. This coming week is June VIX expiration so Monday VXX traders should know that just over 90% of the fund is based on July VIX futures performance. By this time next week August VIX futures will be in the mix.   It seems strange to be talking about August when the summer just started.

Indexes Options

There was a trade that caught my eye on Thursday in VXX options. Taking a somewhat long term bearish VIX on VXX a trader came in and bought 15,000 of the VXX Jan 2015 20 Puts for 0.75. VXX closed at 32.37 on Thursday and I was prompted to perform some back of the envelop calculations on VXX performance and this trade.

We all know that since inception VXX drops an average of about 1.5% per week. If you didn’t know it you do now.   So I took Thursday’s close and determined where VXX would be on January 19, 2015 if every week were an average week (in very rough numbers). The result was VXX at about 20.25. Whoever took on this position is expecting VIX to stay low for the remainder of 2014 and into 2015. I have a note in my 2015 calendar to check the result on the third Friday of January 2015.