Global stocks took it on the chin Friday after the outcome for the vote in Britain determined that the majority of voters want to break from the European Union. Usually I show the week over week change for VXST, VIX, VXV, and VXMT to lead off this blog. Because the week over week change doesn’t tell the full story I included the closing prices from Thursday as well.
The lowest line on the chart shows the closing levels for each of these S&P 500 oriented volatility indexes the day before the US stock market reacted to the news out of Britain. Two things stand out on this chart. First, the line is lower than last week’s close which shows that the one day move for volatility was greater than the week over week move for each index. Something else that stands out is the relative level of VXST to VIX. VXST is a nine-day measure of volatility as indicated by very short dated SPX option pricing. Regardless of how certain the bookies were in Britain with respect to the vote going ‘remain’ the option market was poised for a bit of short term risk. Sometimes the financial markets are smarter than the gambling houses.
Every ETP on the table below is down for 2016 with one exception. The iPath S&P 500 VIX Mid Term Futures ETN (VXZ) finished last week up 1.33% and is up 2.42% for 2016. Otherwise the rest of the funds have suffered from the choppiness that has been the volatility markets in 2016. That type of price action took a toll on the inverse funds last week which finished down much more than VXX and the long funds were higher.
Many other things stand out on the table below. VVIX at 125.13 is a 2016 high. SKEW finished the week at 142.92 which is just a little bit lower than the 2016 high of 145.88. What is impressive about SKEW is that it is a measure of the relative implied volatility of far out of the money SPX put options compared to options with a strike price closer to the S&P 500. That means it is a relative volatility measure and that out of the money volatility has to rise dramatically to maintain a high level. With VIX in the mid 20’s SKEW over 140 is very impressive and worrisome for market bulls if the high price of out of the money SPX puts proves to be justified.
The chart below is a favorite of mine as it compares the year to date performance of VXX, SVXY, and UVXY by indexing each fund to 100 to begin the year. In the words of a pretty smart guy, Eli Mintz or @VixCentral, who commented on Twitter, “The churn has devastated SVXY and XIV”. The result of last week’s action has SVXY in line with VXX which are both down in in the mid-teens on a percentage basis for 2016.