Three out of four volatility indexes that based their levels on SPX option trading were higher last week. VIX was the lone loser with 9-day, 3-month, and 6-month volatility indexes all moving higher.
The long volatility linked ETPs, based on US volatility, were all higher last week. Note things were different in Europe as EVIX was lower and EXIV gained. Also, I continue to keep an eye on TYVIX which is showing signs of life as the talk of the end of the bull market in bonds continues to gain followers.
The volatility index space was mostly higher last week, despite a huge gain in US equity prices. Brazilian volatility came under pressure as EWZ has a very strong week.
The long and leveraged long volatility ETPs made a big push to the upside on Thursday before backing off a bit Friday. For this week’s trading example, I went searching for a trade that stepped up with a short term bearish option execution on Thursday. It was very difficult to find something to talk about. I came across several examples of bullish option trades using contracts expiring on January 26th, which were likely traders covering shorts. I think the difficulty in finding a short biased trade from Thursday last week may be anecdotal evidence that market participants are pretty concerned about a true volatility event being just around the corner.
The successful bearish trade I came across sold the UXVY Jan 26th 10 Calls for 0.27 and purchased the UVXY Jan 26th 11 Calls for 0.09 when UVXY was at 10.03 on Thursday. The net result was a credit of 0.18 and a potential loss of 0.82. UVXY did work higher over the course of Thursday, but did spend most of Friday under 10.00 and clearly in a safe place for this one-day bear call spread.