There was a slight twist in the VXST – VIX – VXV – VXMT curve last week as the shorter dated indexes rose and the two long dated indexes dropped slightly. Although unusual, I am not reading too much into this as the curve was already pretty steep and remains so after relatively small changes across the board last week.
While updating the numbers below the first thing that stood out to me was the continued elevated level of VVIX. With VIX up a bit, but still in the 15’s the demand for VIX options remains strong. This buying pressure is usually spurred on by purchasing of VIX calls which payoff in the event there is a selloff in the equity markets and a subsequent rally in VIX. TYVIX worked back up to relatively higher levels as concerns about the US economy caused a drop in interest rates.
SVXY rose slightly last week and VXX was down just under 2%. The whipsaw that was last week in the stock market did put more pressure on UVXY was down by over 4% while places the fund down over 48% for 2016. I continue to marvel at UVXY being off almost 75% from 2016 highs.
I’m always on the lookout for unusual trades in the VIX related ETN space. I know buying a call is not exactly the most unusual trade, but when the strike price of the call is 500% higher than the underlying market it catches my attention. Mid-day Friday over about a two-hour period, with UVXY trading between 13.12 and 13.46, someone appears to have loaded up on UVXY Jun 17th 100 Calls. Specifically, over 6,000 were purchased with the buyer paying between 0.05 and 0.07. UVXY is known for periodically experiencing tremendous upside moves, in fact the fund was up over 100% at one point in 2016. However, for UVXY to run to 100, we really would be looking at a market meltdown surpassing our experience in 2008. Also, note that these options only have five weeks until expiration, therefore the meltdown (and UVXY rally) needs to come quickly.