Textbook and parallel are two terms that come to mind to described the shift in the VXST – VIX – VXV – VXMT curve below. Also, steep comes to mind as the longer dated indexes are pretty elevated when compared to VIX and VXST.
The long funds below benefited from volatility increasing a bit on Tuesday last week, with VIX even putting in a 2017 high, before resuming their downward trajectory. Note TYVIX giving up 10% which puts the volatility of 10-Year Treasury Note options at the lowest levels since October 2016.
Short volatility has ruled 2017 and SVXY is now up well over 40% while VXX has given up over 30% and UVXY is down exactly 54%.
Leaders to the upside, or where the volatility was at last week, were the EuroCurrency (EUVIX), Brazil (VXEWZ), and Gold Minders (VXGDX).
Tuesday VXX closed at 18.42 which was 0.13 off the high for VXX last week. One nimble trader came into the market with a bearish spread executed at the closing bell. The specific trade was a buyer of 3000 VXX Mar 10th 18.50 Puts for 0.85 who then sold 4500 VXX Mar 10th 17.50 Puts for 0.30. The net for each 2 x 3 spread comes to a cost of 0.80. The payoff for this trade on the close this coming Friday appears below.
I placed where VXX finished the week on this diagram to show the market is right where the trader behind this spread wants, just a week early. 17.50 is the very best outcome for this trade, with upside break-even at 18.20 and room on the downside to 16.30.