Weekend Review – Volatility Indexes and ETPs – 6/12/2016

Last week VIX rose every day which isn’t all that unusual.   What was ground breaking was that VIX rose each of the first three days last week despite the S&P 500 moving up as well. I decided to take a look at what has happened in the past when both the S&P 500 and VIX rise together for three consecutive days. The result, it’s not as uncommon as I thought, we’ve had 17 occurrences of three up together.  However, the last time was in January 2013.

VXST - VIX - VXV - VXMT

VVIX has remained fairly high for most of 2016 even when VIX moved lower. Based on last week’s action it moved over 100 as demand for VIX calls increased.   The long ETPs had a nice week with VXX up over 10% and UVXY 20%.

VXX Table

Despite the good week, VXX and UVXY are still down dramatically for the year. SVXY gave up about half of the 2016 gains is now up only 14.5% for the year after being up as much as 30%.

VXX SVXY UVXY

At least on trader got a jump on Friday afternoon’s move higher in volatility. They also appear to expect some follow through next week. About 15 minutes into the trading day, with VXX at 13.89, someone purchased 3,000 VXX Jun 17th 16 Calls for 0.15 and sold 3,000 VXX Jun 17th 21 Calls for 0.04 and a net cost of 0.11.

VX PO

If the trade is held to expiration and VXX is anywhere over 16.11 then the result is a profit. The maximum loss is 0.11 and a week for the record books which places VXX at or above 21.00 would turn that 0.11 investment into a profit of 4.89. I should note that the trade could be exited on the close at 0.16 for a 0.05 profit, but I can tell by the trading activity that this trade is still open. At least they are off to a good start.

The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

2 Comments

  1. Simon Lee says:

    Can you double check? VXZ and ZIV are inverses yet if you bought both of them together, you would have made a lot of money last week? Were the prices correct entering into the calculations?

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