Stocks ended the week on a strong note and the result was S&P 500 related volatility indexes doing what they do in 2017 after even a slight move to the upside and lost value. The curve shifted lower and back into contango.
Again, VVIX remains a bit elevated, something that was pointed out a couple of times last week in Hong Kong at our Risk Management Conference. Steve Sears also discusses the use of VIX options this weekend in his column noting the most common use is hedging. This means higher VVIX is a result of market participants paying up for portfolio protection through buying VIX calls. SKEW moving higher means the same thing may be said about SPX put activity.
Most volatility indexes quoted at Cboe were lower last week after going the other direction the week before. VXST was the big loser and VIX was close to the bottom. On the upside, GLD and SLV volatility rising is the only thing that stands out a bit.
About mid-day Wednesday the tide turned against the volatility bulls. An hour or so before VXX put in the weekly high someone came in with a trade that appears to assume the upside move was nearing an end. With VXX at 32.50 there was a seller of the VXX Dec 8th 33 Calls at 0.61 who purchased the VXX Dec 8th 37 Calls for 0.15 resulting in a credit of 0.45. The payout as of the close this past Friday shows up below.
This trade just about picked the top in VXX with the ETN finishing the week at 30.33, well within the range of maximum profitability.