The Week in Volatility Indexes and ETPs – 10/6 – 10/10

I’m going to try to coin a phrase with respect to the combined curves below. Last week we were in a normal contango environment based on comparing VXST, VIX, VXV, and VXMT closing prices on October 3rd. This week we finished in a mirror image textbook backwardation based on those four volatility indexes. Comparing the two looks like a horn to me and I know if I keep thinking about it I’ll come up with something catchy.

VXST - VIX - VXV - VXMT Curve

The long ETPs were the place to be last week with the unleveraged rising over 20% and those supercharged leveraged long funds rising over 40% (TVIX and UVXY). Before getting overly excited about TVIX and UVXY I should point out that both are still down over 40% for the year despite the big week.

Index - ETP Table

I came across a short term long volatility trade that had me scratching my head on Thursday afternoon. There was a buyer of 20,000 VXX Oct 10th 33 Calls for 0.49. VXX finished the day on Thursday at 32.21. This turned out to be a heck of a trade as VXX finished the week well over the 33 strike price at 35.85. The full story shows up in the payoff diagram below –

VXX PO