The Week in Volatility Indexes and ETPs – 2/9 – 2/13

All is right in the world as the S&P 500 closed at the first record high for 2015 and VIX did what it is ‘suppose to’ and closed at a 2015 low. Of course the 2015 low is higher than the average for 2014. It appears that those smart guys that trade listed volatility derivatives do not believe we are going to see dozens of S&P 500 records like we did last year.

The VXST – VIX – VXV – VXMT curve is showing the impact of the current three day weekend on the short end. I was in a meeting where we were discussing plans for the 30th anniversary of The Options Institute when it was noted VXST had a 12 handle on Friday. I was quick to jump on the topic of three day weekends and the extra headwind that VXST experiences on days before a three day weekend. I haven’t check the numbers lately, but I’m pretty sure there has never been a trading day before a three day weekend where VXST did not close lower on the day. VIX also has a little bit of a drag on performance in front of long weekends.

VXST - VIX - VXV - VXMT

The exchange traded products have had a tough time with the zigzag price nature of VIX and VIX futures in 2015. Both the long and short funds all are down for 2015, although the inverse funds (SVXY and XIV) put up quite a week last week rising over 10%.

Performance Table

Early Friday there was a bearish VIX option trade that came into the pit. Apparently someone has a strong opinion where February VIX options will settle on the open Wednesday and backed that opinion up by selling an out of the money call. Specifically there was a seller of 4,000 of the VIX Feb 18 Calls at 0.37. At the time of the trade VIX was quoted around 15.15 and the Feb VIX futures quoted around 16.70 – as long as February VIX settlement comes in below 18.00 the trader gets to pocket and keep that 0.37.  Settlement over 18.37 will result in some sort of loss, depending on just how high VIX settlement is relative to that break-even point.