VXST Last Week – 7/27/2014

I like being surprised and perplexed when I look at the week over week changes in volatility indexes. What has me really scratching my head is the difference between VXST and VIX. VXST was down slightly last week while VIX rose over 5%. That’s where I start to wonder what is up. I could understand VIX up slightly and VXST down a little (or vice versa) based on the S&P 500 being hardly changed last week. However, we got some news on the horizon with an FOMC announcement Wednesday and the July employment number out before the market opens on Friday. If I knew VIX and VXST were going to diverge last week I would have guessed VXST would have been higher and VIX would have been down from Friday to Friday.



Continuing on with the VXST observations, the futures curve finished the week displaying a very ‘normal’ shape. Again I’ll refer to next week’s big economic news. I would expect the August 6th future to stand out a bit on the upside relative to the other contracts. Maybe it is too early and that shift will occur Monday or Tuesday, but since VXST futures trading is still relatively new, what is normal or to be expected from the curve price changes is a work in progress.


Gold and Oil Volatility Last Week – 7/27/2014

Checking with top people at the Rhoads family reunion this weekend, the feeling is that Gold is moving up, that is if more buyers than sellers show up.   In reality the published pundits seem to have a bearish outlook for the yellow metal. As for me, I just hope it breaks out in one direction or another since that will result in high volatility and I’m all about that.



Oil seems to be hovering over the $100 level, which sounds high to passive commodity observers, but is lower than where we have been this year and seems to be holding steady.


The GVZ curve appears to expect more of the same as far as GLD being range bound. However, the ‘bump’ in the OVX curve that is the August future makes me wonder if that market is bracing for the next conflict and expecting it sooner rather than later.


Russell 2000 and Nasdaq-100 Volatility Last Week – 7/27/2014

I write this from the middle of Tennessee at a family reunion. I do not say this to elicit sympathy, but understanding as I have not been watching the markets as closely as I normally do. I noticed that the Nasdaq-100 had a nice week and VXN dropped as one would expect. In fact, after getting out my slide rule and double checking, it appears that NDX is up over 10% for 2014.



There is the technology sector, leading the pack and then domestic small cap stocks in 2014. The Russell 2000 as the best representative of small cap stock performance was lower last week which places it at down well over 1% for the year. There is always head scratching, especially when I’m spending the weekend in the woods, but even with RUT down this past week RVX managed to drop. I gotta get back and figure out what is going on…


The curves both steepened a bit which I’m going to attribute to the most psychologically treacherous part of the calendar for the stock market creeping up on us. Another ‘to do’ item for me upon return to civilization is to check the September – October period for equity markets and their respective volatility indexes.

VXN RVX Curves

VIX Last Week – 7/20/2014

What a day VIX had last week. We got a 32% plus move in VIX and the second highest VIX futures volume ever. And then we returned to the new normal of VIX being a pre-teen. When VIX moves to the upper teens and stays there it is going to be a rude awakening for those that do not realize VIX can (and will again…someday) stay at elevate levels. For now the standard seems to be any move higher is followed by a quick move lower.



July VIX futures and options expired on the open Wednesday with settlement coming in at the lowest level since February 2007 when settlement was 9.95. July VIX settlement was 11.03. I do want to use the February 2007 settlement as a history lesson. Six months later August 2007 VIX futures and options settlement was 25.05. This after a 9.95 was the settlement value just six months earlier. I may be doing a Chicken Little dance as I throw these things out there, but I really do want traders to realize that the VIX environment can change very very quickly.

I’ve probably beaten the phrase that the week over week price changes for VIX do not tell the whole story of last week, but they don’t.  August futures closing at less than a point premium to VIX on Friday with over a month to August settlement (8/20) may be the most complacent thing I have witnessed in the volatility markets.  Note that too much complacency is considered bearish for stock prices by many market pundits.


Finally, Steven Sears gave a lot of attention to VIX in Barron’s this weekend (actually his whole column). He noted that there were buyers of a wide variety of August VIX calls this past week and even some traders looking out as far as October for tail risk protection (or benefit).  So the futures say complacent, but the traders are still focusing on out of the money VIX calls.

Emerging Market Volatility Last Week – 7/20/2014

The emerging market space did not react in quite the same manner as the S&P 500 as rumors took stocks lower in a couple of legs down Thursday. We saw a gain in the implied volatility of EEM options, but not nearly to the extent as with the developed markets.

VXEEM Corrected


Brazil continues to be a fun space to watch in 2014. Apparently there is unhappiness with the leadership and a change may be on the horizon. This was given as the reason Brazilian stocks moved up last week with the iShares MSCI Brazil Capped (EWZ – 50.30) putting up a 3% week and now 2014 performance for EWZ is just shy of up 15%. I always had a little sympathy for CEOs that would resign and the result would be a rally in the stock price – I sort of have the same sympathy for Dilma down in Brazil as the stock market rallies because she may be on the way out.


The VXEEM curve twisted while VXEWZ prices moved uniformly higher last week. VXEEM was up over 9%, but the front month contract actually dropped on the week. This may be attributed to August already at more than a 3 point premium to the spot index on last Friday. VXEWZ rose about 5% and all the futures moved higher as well – this can be taken as an indication that the situation is expected to be tumultuous for the Brazilian economy and stock market over the next few months.


Gold and Oil Volatility Last Week – 7/20/2014

The price of oil rose a bit in conjunction with the flare ups in the geopolitical situation this past week. However, oil had backed off from 2014 highs a few weeks ago and did not come close to surpassing those levels despite some real fear that showed up in the stock market. This resulted in OVX moving up on Thursday, but not nearly to the extent of equity market volatility.


Gold also moved higher as would be expected when there is uncertainty that involves armed conflict. However, like oil, gold didn’t break out to new highs. In fact the move higher for GLD actually resulted in the price moving back into the middle of support and resistance.


The underlying markets have a little in common, but the weekly curve changes tell two different stories. GVZ shifted higher in the type of manner that raises a warning that a bigger price move that has been experienced over the past few weeks may be on the horizon. With respect to oil, the volatility futures seem to be indicating low expectations of any big price moves in the near term.


VXST Last Week – 7/20/2014

On Thursday VXST ran up from 10.26 to 16.23. I’ll catch some flak for this next sentence, but I’m pretty much resigned to always getting flak as long as I talk publicly about volatility markets. That means the CBOE Short-Term Volatility Index was up just over 58% which was the fourth biggest move (on a percentage basis) based on the history for VXST that CBOE has compiled going back to January 2011. I know there’s an argument to not discuss volatility index changes in the context of percentages, but I think of them as index points and if we talk about the S&P 500 changes in percentage we should do the same for volatility indexes. VXST PA The curve had quite a move over the 48 hour period covering Thursday and Friday of last week. I included the closing prices on Thursday since I think it sheds a bit more light on exactly what sort of short term move up (and down) we got in VXST and VXST futures last week. VXST   Finally, VXST option trading continues to see increasing volume. Friday about 5,000 VXST options changed hands with big volume in the VXST Jul 23rd 18, 20, and 22 Calls.

Russell 2000 and Nasdaq-100 Volatility Last Week – 7/20/2014

Despite some interesting market movements last week VXN was down slightly. We can combine Friday’s market rebound from the latest one day crisis that occurred on Thursday along with INTC, EBAY, and GOOGL getting their earnings out of the way. I did notice that some big Nasdaq-100 components report next week (AAPL, AMGN, AMZN, and GOOGL) so I would have expected VXN to be a little bit higher going into those numbers, it could be VXN is telling us not to expect many fireworks over the rest of the second quarter earnings season – at least not from tech and biotech companies.



The Russell 2000 continues to underperform the S&P 500 in 2014 and RVX has been at quite a premium relative to VIX.  Since RVX was already a bit elevated we didn’t see quite the move from small cap volatility as we did from VIX on Thursday. However RVX did tick up slightly on a week over week basis.


This past year the Russell 2000 has underperformed the S&P 500.  This is normal, and a little expected, since there was some strong outperformance in 2013. I spend part of last week at Russell Investments in New York and while I was there on Wednesday the relative spread between RVX and VIX reached the highest level in over 8 years. The table below shows the spread as the difference between RVX and VIX divided by VIX. This spread hit over 71% Wednesday and then abruptly backed off on Thursday.

In the past when geopolitical risk pushes volatility higher it has resulted in VIX climbing faster than RVX (and VXN for that matter). The relative spread between RVX and VIX closed at 71.09% on Wednesday and quickly dropped to 43.05% as VIX climbed more dramatically than RVX as equity markets sold off. As the financial markets brushed off Thursday’s scare the spread widened back to 56.88% to finish the week. The history of the difference between RVX and VIX along with the relative performance of the S&P 500 and Russell 2000 (as measured by the Russell 2000 minus the S&P 500) shows up in the table below.

RUT - SPX Relative Performance

Finally on a week over week basis the curves didn’t do much at all. Wednesday was settlement for the July VXN and RVX contracts and now August is the front month.


Volatility Indexes and ETPs Last Week – 7/20/2014

The week over week curve changes do not even come close to doing this past week’s volatility index action any justice. I got out my back up spreadsheet that allows me to plot three lines. The result is below. Note the purple line showing the short lived volatility event from Thursday. The pattern of a spike followed by a drop continues.



The same thing may be said for the weekly ETP performance. Just as an example VXX closed Friday at 29.93 which would have placed the fund up 5.76% for the week. Instead, as seen below, VXX gave back 1.45% last week.

Options ETNs

With the move higher in volatility there was a lot of activity in VIX futures, options, and the ETPs as well on Thursday. The habit has been selling volatility on any move higher and that’s what I caught a glimpse of Thursday morning as someone bought a put spread with only a day left until expiration. Around 10:30 Chicago time there was a buyer of 12,000 VXX Jul 18th 28 Puts for 0.40 that also sold 12,000 VXX Jul 18th 0.04 and a net cost of 0.36. It is rare that I get to talk about a trade in this space and discuss the conclusion as well as the entry. However, as these were options that expired this past Friday I can at least note that VXX closed at 27.89 so the spread had a value of 0.11 if held through expiration. I’m doubtful that is the case, but if so someone will be short 1,200,000 shares of VXX come Monday morning. Either way a payout diagram for this one day trade showing VXX at 28.05 at 10:30 on Thursday, which was when this trade went off, and Friday’s close of 27.89 appears below.

VXX Put Spread

Volatility Index Reactions to Thursday’s Market Action

The cool weather has been making it feel like summer is ending and the markets acted like it as well. History tells us that September and October are treacherous months for the stock market and like the cool weather we got a swoon in the S&P 500 today. The result was fairly decent moves in VXST, VIX, and VXEEM when compared to historical spikes. The table below covers all the tradable volatility indexes, their performance today, where the percent change ranks relative to history, and what the record moves have been for each index.

VIX Table

Upon first glance the difference between RVX and VIX stands out. I’ve noticed in the past when we have events that result in macro concerns VIX tends to rise more than either VXN or RVX. We definitely witnessed that today. The tame moves in GVZ and OVX were a bit surprising as well, the Russia – Ukraine situation has influenced oil in the past so I kind of was perplexed by those to volatility indexes not putting up a bigger gain. Finally, the difference between VXEEM and VXEWZ stands out as well, but VXEWZ has been at a significant premium relative to all the other equity market volatility indexes in 2014, despite the Brazilian market being fairly strong. With a much higher price to start the day it was to be expected that the percent change on the day would lag the other market oriented indexes.

So is today the beginning of the elevated volatility we have been waiting for?  Only time will tell.


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