The Week in VIX – 8/31 – 9/4

On the traditional VIX curve we saw a pretty dramatic shift of the upside across the board.  The exception was spot VIX, but we have to attribute the smaller move to the three day weekend effect that causes VIX to close a little lower than if we were approaching a 2 day weekend.  A couple of things catch my eye on the term structure chart below.

VIX Curve Plus Table

First, the price difference between September and October has me scratching my head.  On Friday we kept hearing how the employment number may impact what the Fed decides to do on September 17.  If that were really the focus of the market I would think that the VIX future that expires after the announcement would not be at a 2.25 point discount to the contract that settles the day before the Fed’s next announcement.

The second thing that really impacted me was how much the farther end of the curve gained last week.  As VIX remains in the upper 20’s the market is adjusting for this sort of higher volatility environment to continue for the next few months.

The near dated futures curve shifted higher as well.  The September 9th future finished the week at a premium of 0.45 to spot VIX which I will attribute to the expectation that VIX will get a small boost after we all celebrate Labor Day.  With this being a holiday weekend, that contract has one more trading day and then it settles on Wednesday morning.

VIX Weekly Curve Plu Table

On Friday, as VIX rose and the S&P 500 dropped I went searching for trades to discuss this weekend.  Instead of a specific trade, I’ll just throw a theme out there.   Every big trade I saw was a seller of volatility, either through selling out of the money VIX calls or selling call spreads with the majority of this action focused on the September contracts.