The S&P 500 lost a little over 1.2% last week, but the impact on volatility indexes was more than one would expect from loss like that for the S&P 500. Most significant to me was that both the 3-month (VXV) and 6-month (VXMT) S&P 500 oriented volatility indexes returned to average 2015 levels. This was something I was a bit obsessed with to begin 2016. The shorter end of the curve is still below last year’s average, but a few more weeks like last week and we will be right back to the option market bracing for the worst from stocks.
The short focused funds managed to give up 2016 gains and then some last week as both XIV and SVXY lost 9% last week. This means that every VIX related ETP on the table below is in the red for 2016 with one exception. VXZ is up 0.99% for 2016 after rising 5% last week.
Last week’s price action in the CBOE SKEW Index caught my eye. SKEW has been relatively high for several years for a variety of reason that have been previously covered in this space. The 113.84 closing level had me do some quick research and I found that this was the lowest closing level for SKEW since October 15, 2014. For a little context, the long term average for SKEW is around 118 with the low to high range covering 101 to 146. This 113 close is not exactly an extreme, but is surprising as so much bearishness abounds. I wouldn’t be surprised if these low levels don’t last very long as cheap portfolio protection usually doesn’t stay cheap for very long.