A big up week for the S&P 500 resulted in the VXST – VIX – VXV – VXMT term structure curve returning to contango after going into backwardation to end the previous week. This sort of action is wearing thin for guys on the floor. I was even pulled aside and told that there seems to be a sort of ‘seller’s exhaustion’ when the market moves dramatically in one direction or another. I’ll speak to that topic more after discussing the ETPs.
There was a reversal with VXX getting hit and the short funds benefitting from the drop in volatility. Also the short funds got the benefit of a return to contango for the VIX futures. The performance was basically a gain of 7% for XIV and SVXY and a drop of about 7% for VXX, VIXY and VIIX. I do want to highlight the year to date numbers. The short funds are now down over 14% while the long funds are up almost 9%. That daily compounding that causes disconnects between the performance and inverse performance is more evident when VIX is whipping around as it has been for most of 2015.
Evidence of the lack of option sellers shows up in VIX as it has been pretty elevated for 2015. Another are that it is really showing up is in the volatility of VIX options as measured by VVIX. The chart below shows VVIX for all of 2014 and what there is in 2015.
For the longest time VVIX oscillated between 80 and 120 with an average of about 100. The average for 2013 and 2014 was much closer to 80. So far in 2015 the average has been 105. As long as option sellers remain skittish or on the sidelines when we get big market moves higher or lower the moves will probably continue to be pretty dramatic like they have been so far this year.