This Week in Volatility Indexes and ETPs – 8/1/2014

After checking in on the four S&P 500 oriented volatility indexes I realized part of what I see is expected and the other part is a little worrisome. VXST was up just over 60% last week. I love how I type that and move on. Any other market has a 60% move and there is a CNBC special about it. VXST finished the week at about a 2 point premium to VIX and this is fairly normal considering the S&P 500 was down 2.69%. What makes me pause is the farther end of the curve where 3 month and 6 month S&P 500 implied volatility is pretty much in line with 30 day IV. It makes me wonder if consistently higher volatility is on the horizon.


The long oriented ETNs were higher, as would be expected. VXX is now about half August and half September futures (actually a little more September). Those markets are at a discount to VIX, so the long oriented ETNs could benefit if VIX just remains in the upper teens.  One other thing I would like to point out on the table below is VVIX topping 100.00.  That use to be the mid range for VVIX, now it is a level that represents the top end.

Indexes ETNs

Before all the hub bub on Thursday I there was a bearish spread trade on VXX that caught my eye. Wednesday morning, shortly after the open, a trader came in and sold 17,500 VXX Aug 29th 30 Calls at 1.32 and bought 17,500 VXX Aug 29th 33 Calls for 0.80. The result was a net credit of 0.52. This trade is a pretty common one as many of us are blindly conditioned to put on short positions on VXX which was trading around 28.30 when this bear call spread was initiated.


Despite negative issues that are constantly bantered about regarding VXX, it does do what it is supposed to do when it is supposed to do it. What I mean by that is when we get an increase in expected market volatility VXX moves higher. In fact from Wednesday’s open to Friday’s close VXX was up by just over 16% finishing the week at 33.01. There is still time for VXX to come back down to the 20’s before the last Friday in August, but things could be much worse for the seller of the VXX Aug 29th 30 Calls if they had not chosen to buy the VXX Aug 29th 33 Calls.