The Week in Volatility Indexes and ETPs – 10/5 – 10/9

In Chicago we are already getting use to the Bears getting pummeled each week.  This past week bears everywhere took it on the chin as the S&P 500 put up the best weekly performance in 2015.  What I find interesting on the chart below relates to VIX, which was down 18.4% for the week, which is actually the fourth worst week for VIX this year, despite VIX beginning the week over 20.00.


VXX dropped about 11% and SVXY was up closer to 12% last week.  However, the choppy year is resulting in losses for both funds (so far) in 2015.  A number that stands out to me on the table below is the VIX of VIX (VVIX) which finished the week at 89.08.  This is at the higher end of a longer term range and indicates demand for VIX calls remains high despite (or maybe because of) the recent drop in VIX.

VXX Table

Two trades from Friday in VXX caught my eye, both are bullish on volatility (bearish on the stock market), but have differing levels of bullishness.  First there is was a bull put spread initiated mid-day on Friday using the series expiring on October 16th.  A trader sold the VXX Oct 16th 21.00 Puts at 0.67 and purchased the VXX Oct 16th 19.00 Puts for 0.04 and a net credit of 0.63.  This all happened when VXX was trading around 21.05, so any spike in volatility next week would probably result in the trade being a profit, while the normal price action for VXX if VIX is steady or lower next week may result in a loss with losses being capped from 19.00 or lower.


The second trade has a little bit longer time frame, using options that expire on October 30th.  This trade is pretty darn aggressive as the VXX Oct 30th 24.50 Calls were purchased for 0.72 and the VXX Oct 30th 27.50 Calls were sold at 0.36 and a net cost of 0.36.  At the time VXX was trading at 21.65.  To get the full profit VXX needs to rally about 27% by the end of October.  For VXX this certainly is not out of the question and October is the kind of month that historically experiences increased volatility.