Weekly Review – Volatility Indexes and ETPs – 2/1 – 2/5

VIX rose last week as did the rest of the volatility indexes that based their levels on S&P 500 Index (SPX) option pricing.  Usually in times of panic VXST (9-day volatility) rises above VIX (30-day volatility), but that was not the case this past week.  You can read this two ways – traders think stocks will rebound or traders are mentally prepared for more downside in the market.  I’m leaning toward the latter.

VXST VIX VXV VXMT Curve

I decided to leave the year to date numbers on the table below since it has been such an interesting week.  I find the one week and annual drop in SKEW interesting and took it as confirmation of the market being ready for more downside.  Most of that great performance for VXX and UVXY can be attributed to VIX first month versus second month backwardation which has been in place for all of 2016.

VXX Table Fixed

 

One trader took advantage of the higher state of volatility in front of Friday’s employment number.  Mid-day Thursday when VXX was trading at 25.29 there was a seller of the VXX Feb 5th 27 Calls at 0.13 who purchased the VXX Feb 5th 29 Calls for 0.04 and a net credit of 0.09.

VXX PO

 

Everyone is aware that the stock market did not react positively to Friday’s employment report.  VXX did move higher, but never reached the 27.00 price level that would have added to the stress associated with this trade.  26.81 was the high and VXX settled the week lower than that so the trade was a success.