We finally got a 1% move out of the S&P 500 last week, breaking a streak that has been the focus of many market observers. The result of the dramatic mid-week drop for SPX was a rise in shorter term implied volatility which shows up nicely below.
For only the second week this year VXX and the other long related ETPs were higher. VVIX is showing some strength as concern creeps back into the equity markets. SKEW which reached all-time highs just a week ago, backed off as higher volatility worked into SPX options across all strikes.
VXX and UVXY were both up last week, but it hardly shows on the chart below as both have been under tremendous pressure in 2017. SVXY gave up some returns but is still higher by almost 50% for the year.
Those who succeed in the volatility space often keep their head clear when the market is not being 100% rational. Late Friday the equity and equity volatility markets were a bit schizophrenic as news out of Washington DC didn’t look good for the health care revision bill. UVXY finished the day at 18.22, but less than an hour before the close was much higher. With UVXY at 19.46 a trader decided that was about enough for higher volatility and sold UVXY Mar 31st 24 Calls for 0.74 and purchased the Mar 31st 31 Calls at 0.28 for a credit of 0.46.
The dollar risk / reward for this trade is a gain of 0.46 versus a potential loss of 6.54. Note on the payoff below that in addition to highlighting the UVXY price when the trade went off I also included the closing price from Friday which demonstrates the nice timing of this trade.