Thursday VXST was up as much as 38% intraday before settling the day up ‘only’ 23%. I am well aware of the Monday morning quarterbacking here, but seeing VXST come back in like that despite the S&P 500 closing near the low of the day Thursday may have given traders confidence that the sell off Thursday was not going to follow through on Friday.
The curve finished the week pretty flat which indicates uncertainty. The stock market bears won the tug of war on Thursday and the bulls were the winners on Friday. Looking at the Oct 1st VXST future in line with VXST makes me think there is a lot of wait and see going on for next week.
I checked through the VXST option trading activity last week and came across what appears to be an unfortunate seller of volatility. We are all aware of the S&P 500 sell off on Thursday that resulted in VXST running up to 17.85 before finishing the day at 15.94. On Wednesday it appeared a trader expected a week of quiet activity and sold some slightly out of the money calls.
Wednesday in the afternoon someone came in and sold a little over 200 of the VXST Oct 1st 17 Calls taking in 0.15. VXST finished the day on Wednesday at 12.69 and the Oct 1st VXST future closed at 13.40. On Thursday VXST ran up as high as 17.85 which places those options 0.85 in the money – of course VXST options pricing is based on the corresponding future and the VXST Oct 1st contract ‘only’ ran up to 16.90 on Thursday. Either way, this is still a pretty painful trading experience. For a visual of what this trade lived through on Thursday see the payoff diagram below –