With the S&P 500 racking up more record high closes last week volatility indexes dropped to levels expected when there is a strong bull market run combined with a lack of concern regarding a pull back for stock prices. We also got past the employment number, which did have a few traders on edge, without the stock market not visiting lower levels.
The next big economic event on the horizon is the FOMC Rate Decision coming out the afternoon of December 17th. Any traders concerned about the market impact from the Fed’s last meeting of 2014 would focus on January VIX futures and options since the December contracts actually settle on the morning of the 17th.
The long oriented exchange traded products followed VIX lower, but not nearly to the extent of the spot index drop. The long funds are now about 2/3rds January futures and 1/3rd December. Jan VIX was down less than 4% last week despite the big drop in the index.
Something that stands out on this table below is the week over week change for VVIX. VVIX is a 30 day implied volatility measure of VIX options hence the name VIX of VIX. VIX and VVIX normally move in sync with each other and demand increases for VIX call options when VIX is rising. Tuesday a big option buyer came into the VIX pit purchasing 175,000 VIX Dec 12.50 Puts. Coincidentally on Friday, and there is no way to determine if it is the same trader but it may just be, a buyer came in and purchased 175,000 VIX Dec 11.50 Puts. Normally it is call volume that pushes VVIX to higher levels, however, this past week VVIX appears to have benefitted from demand on the put side of the equation.