The VXST – VIX – VXV – VXMT curve shifted dramatically to the downside last week in response to the S&P 500 recovering about 2% of recent losses. The highlight here for me is that VXST is still at a premium to VIX, although the difference is very slight. All eyes are on the Fed this coming week. I’m going to attribute this short term volatility premium to the market preparing for the known unknown of how the financial markets will react to the Fed statement.
As of Friday VXX was heavily weighted in the October VIX futures contracts. As VIX moved lower so did the near dated futures and the result was an 11% drop in VXX. As of Friday, the September contract is at a premium of about 1 point to October, but that contract will cease to exist come Wednesday morning. I checked on the October – November VIX futures relationship and October finished the week at a whopping 0.20 premium to November. If this holds up the extra boost VXX has been getting from VIX backwardation is going to disappear come Wednesday.