I was reminded of my advancing age several times this past week. I’ll save those incidents for the other grumpy aging men on my block. One of the benefits (let me believe this) of being around for a while is having lived through a variety of market environments. This market got me thinking about John Gotti who was the boss of the Gambino family back in the day. One of his monikers was “The Teflon Don” as he was put on trial three times and acquitted three times. Teflon is a substance that nothing sticks to and I have decided to dub this market the Teflon Bull Market as regardless of what bad news gets thrown at it, this bull market keeps going. The only other time I can recall bad news never sticking to the market was the late 1990’s into early 2000. If you weren’t around back then to see what happened when that bull run came to an end take a look at a very long term chart of the Nasdaq-100 or YHOO stock. Trust me the big drop about 15 years ago is not a data error.

The VXST – VIX – VXV – VXMT curve saw a pretty big drop on the short dated end of things while the longer end worked lower as well. VXV and VXMT maintain a high level relative to the short end which has been the norm for 2015. However, the excuse for this price action was that the true concern for the market is when will rates start to move higher and now that the possibility is approaching it will be interesting to see if the worry shows up in VIX instead of VXV.


The S&P 500 worked higher by just over 1% and VIX returned to the tweens this past week. The long ETNs took it on the chin with VXX dropping about 5% and UVXY losing over 10% for the week. For those that like to think year to date, VXX is just pennies away from being down 50% for the year.

VXX Table


Looking through VXX trades last week I came across someone that appears to have a pretty specific idea about where VXX will be on September 18th. That is unless they have other plans to trade around this position. Late Monday there was a seller of 20,000 VXX Sep 18th 15 Puts at an average price of 0.475 who purchased 10,000 VXX Sep 18th 18 Puts for average price of 2.05. I say average price because these trades were done in two blocks. The net result, taking things down to a size that the rest of us can deal with, is a 2 x 1 Put ratio spread executed at an average price of 1.10. The payoff at September 18th expiration shows up below.


VXX was trading at 17.72 when this trade was executed. Since then VXX has continued to work lower and finished this week at 16.02 which is snugly tucked in the area of profitability for this trade. A quick check of prices late Friday showed the trade had an unrealized profit of 0.15. However, there are lots of trading days to go and anyone that has even heard of VXX knows it can keep moving to the downside or spike to the upside. When the trade went off the area to become very concerned began at 13.10 which was down 35.3%. As of Friday 13.10 is only down about 22%. Say what you want about VXX (and I’ve heard all the criticism and colorful language) but the price action is anything but dull.