This Week in VXST – 9/12/2014

I rarely review the previous week’s volatility trading data and wonder what is going on in trader’s minds. Looking at VXST this past week I have an idea of what they are thinking, I just find it confusing to read headlines with respect to what I see in the numbers.  VXST rose last week, that’s expected with the S&P 500 down 1%.  However, VXST finished out the week at a slight discount to VIX.  I can understand traders being conditioned to the S&P 500 always (at least for a couple of years) rebounding from small drops.  But VXST didn’t even follow the pattern of running up more than VIX, just to come down when the S&P 500 rebound.  I sort of get that, but when I look to next week’s economic calendar I truly am surprised that VXST closed a little lower than VIX on Friday.


The curve also perplexes me at bit.  A Friday headline regarding the stock market read “Red Across the Board on FOMC Meeting Jitters”.  The volatility markets don’t necessarily show that being the cause of weakness in stocks.  Look at the curve below and take note that the VXST future expiring on Sep 17th is at a premium to the Sep 24th future.  The Sep 17th contract expires just before the FOMC announcement Wednesday afternoon.  If the market were really nervously focused on the outcome (and market reaction to the announcement) that Sep 24th contract would be at a premium to the contract that will be off the board as the Fed speaks.

VXST Curve