Weekly Review – Volatility Indexes and ETPs – 2/8 – 2/12

Three out of the four S&P 500 volatility oriented indexes were higher last week.  The shortest dated one, VXST, dropped a little.  We attribute this to the three day weekend impact that puts pressure on VXST, but also usually results in VXST rising the day after a holiday weekend.  For example on Friday VXST dropped 17% while VIX was down 9.74%.  I guess what I’m getting at here is that we should focus on the longer dated volatility indexes on the chart below to get a true picture of what happened last week.

VXST - VIX - VXV - VXMT

Despite Friday’s rebound the S&P 500 lost almost 1% last week and the long oriented volatility ETPs responded in a positive way.  Heightened volatility in 2016 has taken VXX up by 42% and UVXY is up over twice that much.

VXX Table

This year’s equity market action has resulted in the front month VIX future closing at a premium to the second month for all 29 trading days in 2016.  The table below shows that this is the 4th longest period of VIX backwardation since 2007.  Wednesday is the expiration date for February VIX futures and options so March will become the front month and April the second month.  The long funds will begin rolling their positions from March to April and if March remains at a premium the long funds will continue to thrive.

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