Weekend Review of Volatility Indexes and ETPs – 1/21/2018

All four volatility indexes based on S&P 500 Index option pricing moved higher last week.  I know all the talk was about the government shutdown being responsible for the rise.  However, if that were totally the case I don’t think we would be seeing VIX3M and VXMT moving up as much as they did.  I believe there’s more going on here, but I also spend most Friday evenings watching Ancient Aliens.

VXST VIX VIX3M VXMT 01192018

In the ETP space the long funds benefitted from the bump in VIX futures.  Also worth paying attention to is the gain in VVIX, SKEW, and TYVIX.  Risk is coming back into the markets in a broad way.

VXX Table 01192018

The majority of volatility indexes we quote at Cboe Global Markets were higher last week.  On the downside GS and IBM volatility dropped, based on earnings releases and Gold, Oil, and Sliver volatility were all lower.

Volatility Indexes 01192018

On Thursday, with moderate fears of a government shutdown pushing volatility markets higher, one trader came in with an interesting spread.  They sold 150 VXX Jan 19th 27 Calls for 0.40 and then purchased 200 VXX Jan 19th 28.5 Calls for 0.12 each.  Basically they purchased four calls for every three sold.  The net result was a credit of $3600 (excluding commissions).  This trade was executed with VXX near 27.00.  A payoff diagram based on Friday’s close appears below.

VXX Payoff 01192018

This trade was a little dicey early on Friday VXX traded as high at 27.40 which would have resulted in a loss of $2400 if that’s where VXX had closed.  Although the government did shut down, VXX finished Friday a bit lower on the day and if this trade was held through the close the result was a profit equal to the credit of $3600 taken in late Thursday.

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

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