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Weekend Review – Volatility Indexes and ETPs – 3/12/2017

The short end of the VXST – VIX – VXV – VXMT curve moved up while the longer end hardly budged.  TYVIX is at 2017 lows going into FOMC week, but it appears equity volatility may be pricing in some uncertainty in front of this week’s Fed decision.

VXST VIX VXV VXMT Weekend Review – Volatility Indexes and ETPs – 3/12/2017 at vixtrade.com

Needless to say and already mentioned, VXST is the big attention getter on the table below with a 24% gain last week.  The Ten-Year futures dropped more in front of higher rates, but note that TYVIX, which closed at 2017 lows last Friday was unchanged on a week over week basis.

VXX Table Weekend Review – Volatility Indexes and ETPs – 3/12/2017 at vixtrade.com

Short volatility was all the rage at RMC last week in California and the SVXY performance on the chart below explains why.  VXX and UVXY are just continuing to grind lower due to an absence of a volatility event in 2017.

VXX SVXY UVYX Weekend Review – Volatility Indexes and ETPs – 3/12/2017 at vixtrade.com

On the table below I love comparing what was hot and what was not and this past week it was commodities at both ends.   Oil futures broke 50.00 which pushed OVX higher.  Gold didn’t do much and at the bottom of the table $GVZ and $VXGDX were the biggest volatility losers last week.

Vol Index Prices Weekend Review – Volatility Indexes and ETPs – 3/12/2017 at vixtrade.com

With Gold volatility so low I went looking for a trade that got long GLD volatility from last week.  I did not have to look very far as on the open Friday there was a buyer of a GLD Mar 17th 114.50 Straddle on the open Friday.  With GLD at 114.44 they paid 0.98 for the 114.50 Call and 0.95 for the 114.50 Put resulting in a net cost of 1.93 and a “V” looking payout demonstrated below.

GLD PO Weekend Review – Volatility Indexes and ETPs – 3/12/2017 at vixtrade.com

If held to expiration this trade needs gold to move down about 1.6% or up 1.7% to break even.  I took a look at GLD weekly price action over the last 12 years and on average GLD moves up or down 2%.  This doesn’t take into account moves during the week which could be gamma scalped.  On a more recent time frame six of the ten most recent weeks have experienced a move of more than 1.7%.  I’m not a big advocate of buying straddles, but when volatility is cheap it can make sense.  It’s pretty hard to argue with the logic behind this trade.

 Weekend Review – Volatility Indexes and ETPs – 3/12/2017 at vixtrade.com >

Weekend Review – VIX Options and Futures – 3/12/2017

VIX was higher and all VIX futures were lower last week.  We have been in a pretty steep state of contango which flattened a bit.  However, there are expectations that April will remain elevated due to market conditions in Europe.  This will be explained a little more below.

VIX TS Table Weekend Review – VIX Options and Futures – 3/12/2017 at vixtrade.com

The VSTOXX term structure appears below and note the elevated April futures contract price relative to the spot index (it’s impossible to miss).  This shape has been around for a while now and we’ll keep an eye on it as the French election approaches.

VSTOXX Weekend Review – VIX Options and Futures – 3/12/2017 at vixtrade.com

With a couple of hours remaining in the trading day this past Friday there was a risk reversal initiated in the VIX pit with a focus on April.  With the April futures contract at 14.40 and VIX at 12.00 someone sold 4050 VIX Apr 19th 13.50 Puts for 0.86 and bought 4050 VIX Apr 19th 20.00 Calls for 0.60 for a net credit of 0.26.  The payoff along with the futures and spot price highlighted appears below.

VIX PO Weekend Review – VIX Options and Futures – 3/12/2017 at vixtrade.com

 Weekend Review – VIX Options and Futures – 3/12/2017 at vixtrade.com >

Weekend Review – VIX Options and Futures – 3/5/2017

The week over week change for VIX and the futures doesn’t tell the whole story last week. Despite falling on a week over week basis, VIX did show some life closing on Tuesday at 12.92 before retreating to close under 11.00 for the week.

 Weekend Review – VIX Options and Futures – 3/5/2017 at vixtrade.com

I’m going to add something to this space for the next few weeks as there is a divergence in the volatility world.  Specifically, VSTOXX futures pricing from April and beyond is at a significant premium to corresponding VIX pricing.  The chart / table below shows market concern for the Eurostoxx 50 going into April which coincides with the French election process.

 Weekend Review – VIX Options and Futures – 3/5/2017 at vixtrade.com

Also, for more on this divergence, Reid Steadman put up a nice blog late last week.

http://www.indexologyblog.com/2017/03/02/futures-prices-for-europes-fear-gauge-jump-u-s-investors-say-le-pen-le-who/

Since the volatility world is now fixated on April, I went searching for a trade that may be looking for higher volatility during that month.  On Friday, there was a diagonal spread that appears to be looking for a low VIX into March expiration and then higher volatility between then and April expiration.  With VIX just over 11.00 there was a seller of the VIX Mar 14.50 Calls for 0.49 who used those proceeds to cover some of the cost associated with buying VIX Apr 16.00 Calls for 1.36.  The spread came to a net cost of 0.87.

 Weekend Review – VIX Options and Futures – 3/5/2017 at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 3/5/2017

Textbook and parallel are two terms that come to mind to described the shift in the VXST – VIX – VXV – VXMT curve below.  Also, steep comes to mind as the longer dated indexes are pretty elevated when compared to VIX and VXST.

 Weekend Review – Volatility Indexes and ETPs – 3/5/2017 at vixtrade.com

The long funds below benefited from volatility increasing a bit on Tuesday last week, with VIX even putting in a 2017 high, before resuming their downward trajectory.  Note TYVIX giving up 10% which puts the volatility of 10-Year Treasury Note options at the lowest levels since October 2016.

 Weekend Review – Volatility Indexes and ETPs – 3/5/2017 at vixtrade.com

Short volatility has ruled 2017 and SVXY is now up well over 40% while VXX has given up over 30% and UVXY is down exactly 54%.

 Weekend Review – Volatility Indexes and ETPs – 3/5/2017 at vixtrade.com

Leaders to the upside, or where the volatility was at last week, were the EuroCurrency (EUVIX), Brazil (VXEWZ), and Gold Minders (VXGDX).

 Weekend Review – Volatility Indexes and ETPs – 3/5/2017 at vixtrade.com

Tuesday VXX closed at 18.42 which was 0.13 off the high for VXX last week.  One nimble trader came into the market with a bearish spread executed at the closing bell.  The specific trade was a buyer of 3000 VXX Mar 10th 18.50 Puts for 0.85 who then sold 4500 VXX Mar 10th 17.50 Puts for 0.30.  The net for each 2 x 3 spread comes to a cost of 0.80.  The payoff for this trade on the close this coming Friday appears below.

 Weekend Review – Volatility Indexes and ETPs – 3/5/2017 at vixtrade.com

I placed where VXX finished the week on this diagram to show the market is right where the trader behind this spread wants, just a week early.  17.50 is the very best outcome for this trade, with upside break-even at 18.20 and room on the downside to 16.30.

 Weekend Review – Volatility Indexes and ETPs – 3/5/2017 at vixtrade.com >