All four of the volatility indexes that use SPX options as inputs rose last week. VXST rose, off an admittedly low base, by almost 30% while VIX was up 10%. Longer dated volatility was higher as well. The relationship between VXST and VIX, which I wrote about more extensively in the previous blog, tends to make me ponder the mind of the market. Basically VXST at a discount to VIX, even slightly, can be read that the equity market should rebound as it has done over the past two plus years. Even with PPI and the FOMC this next week and the dreaded months of September and October not behind us volatility indicates no fear in the markets.
In the ETP space VXX was up over 4% as the September and October VIX futures were higher on the week. VXX is almost all October VIX futures as September goes off the board on Wednesday morning.
A big put seller in VXX was highlighted earlier in the week by Scott Nations. He pointed out Tuesday a trader came in and sold 15,000 VXX Oct 25 Puts at 0.48 which is most likely a bet that VXX will be over 25.00 on October 18th when those options expire. As of Friday, with VXX finishing the week at 28.62 those puts could be bought back for 0.33. So far so good for this bullish volatility (bearish stock market) trade. To read the full analysis by Nations click on this link –