Weekly Review – Volatility Indexes and ETPs – 1/25 – 1/29

The equity market came to life last week and avoided what could have been the worst January in most of our lifetimes for stocks.  In response the four volatility indexes that are based on SPX option pricing were lower, but all four are also well above where they were to end 2015.


I included a year-to-date performance column in this week’s table.  A big part of the motivation was to show the stellar performance of VXX and UVXY (along with the comparable funds) for 2016.  To quote a really smart guy at CBOE, “those long funds did what they are supposed to do when volatility expectations are high.”

VXX Table

With the market rally came a drop in volatility in the form of VIX.  However, the long oriented ETPs have held up fairly well with first month versus second month backwardation being the state of things every day in 2016.  At least one trader is under the belief that the up move is not over for UVXY and expressed this opinion through purchasing 300 UVXY Feb 5th 42 Calls for 1.80.  A one week 14% move is needed to get to break even on this trade so someone really expects a resumption of weakness in the stock market to come back to life next week.