The Week in Volatility Indexes and ETPs – 10/26 – 10/30

When I do these blogs I get the data, create the graphics and look at the markets.  I share these mundane facts about my ‘process’ to make a point about the diagram below.  Last week we got an FOMC meeting (although one without a press conference) and GDP number behind us without the stock market did not reacting negatively.  We are looking forward to the October employment report that comes out this Friday, but we did get two of the big three economic events behind us.  That combined with the S&P 500 rising on the week would make one think the volatility curve would have shifted lower, not higher.  However, numbers don’t line and the chart below shows some real concerns about the prospects for the stock market over the next few weeks.

VXST - VIX - VXV - VXMT

Both SKEW and VVIX also remain elevated, although down on the week, which I take as a sign traders are not expecting to cruise through the end of 2015 without some detours or speed bumps along the way.

VXX Table

The biggest VXX option trade on Friday was also one of the last block trades of the day.  VXX was at 18.82 and a bear call spread was executed using the November 20th options.  The trader sold 6000 of the Nov 20th 17.50 Calls at 1.83 and purchased 6000 Nov 20th 18.50 Calls at 1.43 and a net credit of 0.45.  This trade is looking for three weeks of relative calm in the equity markets to persist and VXX to do as it does in this type of market, which is grind lower.   The payoff if held to November expiration appears below –

VXX PO