The S&P 500 was down 5.77% and S&P 500 related volatility indexes did exactly what traders would expect. They shot higher and the curve became as inverted as it has been in the last three to four years. I’m pretty sure the last time the VXST – VIX – VXV – VXMT curve was in this sort of backwardation was in August 2011.


For the record VXST was up 231%, VIX rose 118%, VXV gained 51%, and VXMT was higher by about 34% for the week.   Before the week began, XIV and SVXY were higher by about 40% for 2015. After the pummeling those funds took last week, the year to date performance is ‘only’ a gain of 15%. I’m sure that is not much consolation to holders of the funds that experienced the one week 25% drop.

VXX Table

I got questions about the underperformance of the long volatility funds last week relative to the huge gain in VIX. Those funds give holders exposure to the front month VIX futures. As of Friday this is the September and October contracts. As last week was August expiration, the September contract dominates the performance of those funds and that contract gained 31% last week.

Since I’m a company man, I will just mention that there are VIX Weeklys available and the VIX future that expires this coming Wednesday on the open gained 70% last week and was up by 35% on Friday.

With VXX has gained 30% over a five day period I look around for trades taking the other side of the volatility spike.   I didn’t have to look too hard as close to the end of the day there was a seller of the VXX Aug 28th 21.00 Calls at 1.46 and paid 0.93 for the VXX Aug 28th 23.00 Calls for a net credit of 0.53. The risk is 1.47 if the market drop and volatility rise continues next week while the reward for a calming of the markets is equal to the 0.53 credit received.