Weekly Review – Volatility Indexes and ETPs – 11/23 – 11/27

Very quiet holiday week.  There really isn’t much else to say, but it is interesting that VIX remains over 15.00.  I’m also attributing the rise in VXST to getting a holiday shortened week behind us.  Man I’m glad it’s not my job to fill up a business network with programming which must have been a heck of a challenge last week, especially on Friday.


The funds were quiet as well, but you have to snicker when a 2.7% change (see VXX below) is considered nothing to get excited about.  SKEW continues at very high levels which means tail protection in the SPX arena isn’t cheap as the out of the money implied volatility continues to be bid up.

VXX Table

Someone is either looking for a big directional move out of VXX next week or possibly planning on trading around two long VXX option positions.  Whatever the motivation, just after lunch time on Friday there was a buyer of the VXX Dec 4th 19 Put at 0.80 and VXX Dec 4th 19 Call at 0.60 for a net cost of 1.40.  This all happened when VXX was trading at 18.81.  If held to expiration VXX needs to be over 20.40 or below 17.60 for the trade to turn a profit.  Based on the 18.81 pricing at the time of the trade VXX needs to rise about 8.5% or drop around 6.5% to break even.


After I put this trading example together, I spent some time thinking about different reasons to put on a VXX straddle.  I’m thinking out loud and major league jet lagged, but it occurred to me that this could be a ‘cheap’ hedge against a black swan event.  When I say cheap, I mean if the market is quiet next week the Put will have some value which offsets the cost of the call option which probably would expire out of the money.  Usually when you want to offset the cost of an option you sell another option.  For instance to lower the premium for the Dec 4th 19 Call a call option with a strike that is farther out of the money could be sold.  However, in that case a trader is giving up some upside.  Any thoughts are always appreciated – rhoads@cboe.com