The VXST – VIX – VXV – VXMT curve is a textbook, “here’s what it looks like in front of an event”. The event being the first round (yes it doesn’t end Sunday) of the French Election. We will know when the markets open Monday morning who the two finalists are to be the next Presidence del al Republique. I do expect VXST to fall back in line come Monday morning, either with the longer dated contracts rallying but more likely due to VXST dropping like the implied volatility of stock options after earnings.
TYVIX is a standout on the table below as the interest rate fear index finished the week at 2017 highs and above 6.00 for only the second time this year. The next Fed meeting is May 3rd and right now the market is pricing in a 95% chance of no rate change. After that we have a June 14th decision and the odds are around 50% of a hike. That’s uncertainty and may be influencing TYVIX. SKEW, which has gotten some love this year, moved up nicely which means a bit more with VIX in the 14 – 15 range.
For the year short volatility has worked, but it is worth nothing that VXX is up 8.9% in April and UVXY has gained 17.4% since the end of the first quarter. There’s a number to through at people when they say you should never own the long volatility funds.
Finally, in the volatility space the leaders last week were VXST, which got a double boost from the three day weekend effect and this weekend with the pending volatility event. Oil has been making a move and that placed OVX near the top of the list. Note on the other end we have IBM which experienced a post earnings volatility crush.
On the trading end of things I’m sharing a trade that an Options Institute student initiated on Friday. They believe VXX will be under 17.00 as the air comes out of VIX and associated futures after this weekend’s election. With VXX around 17.50, they sold the VXX Apr 28th 17.00 Call and purchased the VXX Apr 28th 19.00 Call at a net credit of 0.58. Their timing was pretty good since VXX closed the day lower and they are a 0.20 drop next week away from this trade working out to perfection.