The shift lower in the VXST – VIX – VXV – VXMT curve was 75% parallel and 25% dramatic. The dramatic move was at the shorter end of the curve where VXST dropped 28% moving from a premium to discount relative to VIX.
As noted volatility was lower across the board. Of interest below, VVIX finished below 80 and TYVIX remained at very low levels. For the volatility bulls the only glimmer of hope is SKEW around 140, but it is pretty difficult to get excited about any level of SKEW when VIX is in the tweens.
SVXY knocked the cover off the ball rising over 55% for the first quarter. Not on the chart, but worth noting is the REX VolMAXX Short VIX Weekly Futures Strategy ETF (VMIN) which focuses on a shorter time frame than SVXY and XIV, was up 61.4% in the first quarter.
Since the quarter has come to an end the focus will soon turn to first quarter earnings. Higher option implied volatility is often a bi-product of a pending earning release. Although the announcements are a few weeks out, AMZN and AAPL option volatility rose last week. The two Euro Currency related volatility indexes were among the gainers. VXEFA which is an indication of risk associated with Euro Zone stability. VXEFA is based on EFA ETF options which is a fund that gives investors exposure to developed markets excluding North America (US and Canada). As a result, there is a heavy weighting toward European stocks in this index.
Finally, the first size VXX trade I’ve seen that appears to be focusing on the French election process which should come to an end on May 7th. On Friday, with VXX at 15.53 a trader sold the VXX May 5th 14.00 Puts at 0.33 and the purchased the VXX May 12th 13.50 Puts for 0.33. Selling puts that expire before the final election and purchasing puts that expire just after just might be a bet on a post French election volatility crush. The payoff below shows the outcome upon expiration of the May 5th position.
This trade is pretty interesting as it is offers short volatility exposure, but does not realize any losses if we get an unexpected upside volatility event between now and May 5th. The worst-case scenario of a complete collapse in volatility which overshoots the put strikes and results in some sort of loss, which is capped at 0.50. I always say traders will continue to find fascinating ways to utilize the different tools at their disposal and here is another example.