Weekend Review Volatility Indexes and ETPs – 2/16 – 2/19

VXST dropped dramatically last week and closed on the lows of 2016.  VIX managed to hold up a little better and looking at the economic calendar for next week I can kind of see why.  VXST often leads VIX so a move below 20.00 next week may not be out of the question.  After I typed that sentence I realized we are only 0.53 away from the teens so it wasn’t the most daring of market predictions.

YTD Curves

This is the year I am going to focus more on the disconnection in performance between VXX, SVXY, and UVXY.  We all know that SVXY and UVXY offer daily inverse and leveraged performance that is offered by VXX and that over time UVXY does not return two times and SVXY does not offer the opposite of VXX.  Last week VXX was down a tad shy of 11%, while SVXY was up closer to 12%, and UVXY was down about 21%.  There was not much of a disconnect last week as the action wasn’t all that choppy.  Other things of note on the table below is SKEW rising while VVIX dropped dramatically, sort of a divergence of indicators.

VXX Table

Despite the return to contango on trader put on a bullish VXX trade late Friday.  With VXX at 25.38 there was a buyer of the standard VXX Mar 28 Calls at 1.17 who sold the VXX Mar 33 Calls for 0.47 and a net cost of 0.60.  A home run for this trade would involve VXX over 33.00 on the close March 18th and the payoff equaling 4.40.  Anywhere over 28.60 and this trader will probably be content with stepping up during a period of backwardation to get long exposure to VXX.