This Week in Volatility Indexes and ETPs – 7/18/2014

The week over week curve changes do not even come close to doing this past week’s volatility index action any justice. I got out my back up spreadsheet that allows me to plot three lines. The result is below. Note the purple line showing the short lived volatility event from Thursday. The pattern of a spike followed by a drop continues.

VXST VIX VXV VXMT Curve

The same thing may be said for the weekly ETP performance. Just as an example VXX closed Friday at 29.93 which would have placed the fund up 5.76% for the week. Instead, as seen below, VXX gave back 1.45% last week.

Options ETNs

With the move higher in volatility there was a lot of activity in VIX futures, options, and the ETPs as well on Thursday. The habit has been selling volatility on any move higher and that’s what I caught a glimpse of Thursday morning as someone bought a put spread with only a day left until expiration. Around 10:30 Chicago time there was a buyer of 12,000 VXX Jul 18th 28 Puts for 0.40 that also sold 12,000 VXX Jul 18th 0.04 and a net cost of 0.36. It is rare that I get to talk about a trade in this space and discuss the conclusion as well as the entry. However, as these were options that expired this past Friday I can at least note that VXX closed at 27.89 so the spread had a value of 0.11 if held through expiration. I’m doubtful that is the case, but if so someone will be short 1,200,000 shares of VXX come Monday morning. Either way a payout diagram for this one day trade showing VXX at 28.05 at 10:30 on Thursday, which was when this trade went off, and Friday’s close of 27.89 appears below.

VXX Put Spread