The CBOE Short-Term Volatility Index finished the week with a surge on Friday’s short session. The S&P 500 was down about 5 points which one would not expect to be cause for Friday’s 16% gain in VXST. It appears that the oil and gold prices may have influenced VXST a bit as both those markets were under pressure Friday afternoon. I realize saying ‘under pressure’ for oil’s price action on Friday is a huge understatement.
Despite the move higher on Friday, VXST remained in contango going into the weekend. One would think a move like Friday’s and the highest VXST close in almost a month would result in a little backwardation. Despite a couple more new record high closes for the S&P 500 the volatility markets continue to exhibit nervousness with respect to closing out 2014 with gains.
When taking a look at VXST option trading this week something interesting caught my eye. The open interest for VXST Dec 3rd 15 Puts is 1000 contracts which will benefit nicely if VXST remains a low levels into Wednesday morning’s settlement. The following week the open interest for the VXST Dec 10th 17 Calls is 1000 contracts which benefits from a spike in volatility. Between those two expiration dates we get a first look at November economic activity with Friday’s jobs report.