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Perplexing move in the VIX

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MWM Member Level  Wednesday, 03/28/12 07:50:27 AM
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Perplexing move in the VIX
By Chris McKhann
iPath S&P 500 VIX Short-Term Futures ETN
ProShares Ultra VIX Short-Term Fut ETF


The volatility index rose significantly yesterday, especially considering how little the S&P 500 declined.

The VIX was up 1.31 or 9.2 percent to 15.53 as the S&P 500 closed out the day down 3.99 to 1412.52. The April VIX futures rose 2 points or 12.82 percent to 17.6. The May futures climbed up 1.2 or 6.56 percent to 19.5. Those futures will settle on their respective expiration dates to the VIX, which cannot be traded directly.

All of the VIX Short Term Futures Funds are composed of those front two month futures. That list includes the iPath S&P 500 VIX Short-Term Futures (NYSEArca:VXX), which rose 10 percent yesterday, and the ProShares Ultra VIX Short-Term Futures (NYSEArca:UVXY) and the iPath S&P 500 VIX Short Term TVIX, both up about 19 percent. The move higher in the VIX was surprising given the lack of volatility in the SPX, but the action in those futures was even more perplexing.

Over 630,000 VIX options changed hands on Tuesday, more than twice the average amount. Once again puts outpaced calls, which is unusual in this Index. The VXX also saw above-average options volume with 213,000 contracts changing hands. Puts also dominated in that fund as traders continue trying to profit from the premiums shrinking in the VIX futures, against which the options are priced.

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