There was a slight shift in the VXST – VIX – VXV – VXMT term structure last week. VXST and VIX were down, VXV was actually up slightly and VXMT dropped. Relative to history, VXV and VXMT are higher than you would expect with the S&P 500 making all-time highs. I’m convinced the market is braced for a difficult end to 2015.
VXX and the other long oriented ETPs continue to grind lower as VIX stays at low levels and the futures maintain contango. SKEW stands out a bit to me on the table below along with VVIX creeping up a bit. This could be an indication of a little extra demand for tail risk protection. Also, TYVIX moved higher last week. For more color on that index check out a blog by Mark Sebastian at the follow link – http://www.optionpit.com/node/641122
A few weeks ago I noted a buyer of 10,000 VXX Jan 2017 10 Puts for 0.93 when VXX was trading at 20.89. I checked in on that trade and so far so good as the bid side for those contracts was 1.05 on the close Friday. Something that caught my eye when getting an update on that trade was that the open interest is now over 30,000. While poking around I noticed that the Jan 2017 15 Puts have an open interest of over 100,000 contracts. The payout diagram below shows the payoff for each of these options based on the settlement price from Friday along with the percent drop to break even at expiration from Friday’s VXX close.