I’m very hung up on volatility indexes not approaching 2014 lows despite the S&P 500 making new highs. This may be attributed to the rough patch the equity market encountered back in October or a lack of safety net that resulted from the ending of Quantitative Easing. Either way, note the chart below that depicts the VXST closing prices for each of the 41 times in 2014 that the S&P 500 closed at a record high.
The average VXST close on S&P 500 record days is just over 11. All the recent closing levels for VXST have been above the average for 2014 and well above several closing prices for VXST this year.
I checked in on VXST option trading this past week and the open interest in some contracts caught my eye. All four of the active expiration dates have traders looking to VXST options for some sort of short term volatility exposure. The table below shows the top 10 VXST option contracts with open interest.
Finally, the curve shifted higher last week, reflecting high risk expectations among option traders as we reach the end of 2014. It may be actual worry about a drop in the market or an increased desire among managers to lock in gains for the year.
If you want to learn a little more about VXST you can always visit – www.cboe.com/vxstms