Weekend Review – Volatility Indexes and ETPs – 3/28 – 4/1

Don’t fight the Fed. That’s a rule we must all live by and long volatility is a fight that isn’t winning these days. Note the drop in the week over week curves below and keep in mind that on March 24th there was a three day weekend in front of VXST which makes that drop even more dramatic. The curve is steep, which can be taken as longer term concerns prevail, but for the near term those looking for higher volatility have stopped fighting.


The long funds on the table below took it on the chin last week. However the short funds, SVXY and TVIX, did exceptionally well and are now in positive territory for the year.   Note VVIX is still above 80 and SKEW over 120, both as levels indicating a little market concern, despite low VIX.

VXX Table

The UVXY trader that I discussed last week reported in with another trade. Late Wednesday they thought that the market rally was a bit overdone and wanted to place a cheap trade that would benefit from higher volatility. About 30 minutes before the close Wednesday, with UVXY around 19.00, they bought the UVXY Apr 1st 17 Put for 0.06, sold the UVXY Apr 1st 19 Put for 0.78, and then finally purchased two of the UVXY Apr 1st 20 Calls for 0.40 each, before commissions this trade cost 0.08. The trader confided in me that they initially could have done this trade at a small credit, but it moved away as they tried to get cute (their words) with the entry and then initiated at a debit out of frustration. The payout on Friday’s close appears below, even though the entire trade was not held through the close on Friday.


We did get a small spike in volatility Friday morning and our trader took advantage of that by covering the short UVXY Apr 1st 19 Put for 0.20. They placed some limit orders for the long 20 Calls, but as the stock market moved higher those calls just got cheaper and expired out of the money, as did the 17 Put. The net result was a small loss of 0.28, which was much better than if the trade were held through expiration which would have resulted in a loss of 0.84. I know we always like to hear about winning trades, but considering from when the trade was initiated to Friday’s close UVXY dropped from 19.00 when the trade was done to finish the week at 18.22 the trade didn’t turn out too bad.