iPath S&P 500 VIX Short-Term Futures ETN (VXX)

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Weekend Review of Volatility Indexes and ETPs
By: Russell Rhoads | December 17, 2017

Friday was a huge day for US stocks with broad based indexes rallying nicely. The result was pressure on the SPX related volatility indexes which pushed them from up on the week to having a losing week.



Friday’s price action put pressure on the long ETPs and pushed the short ETPs (XIV and SVXY) to even higher levels. Both have now more than doubled in 2017. VVIX remains elevated which indicates the VIX call buyers haven’t completely gone away. TYVIX managed to close at an all-time low on Friday as we got past the FOMC.



A large number of volatility indexes quoted by Cboe dropped last week. Two individual stocks (GS and IBM) and VVIX were the only gainers.



On Friday there was one trader that appears to be looking for a volatility event this coming week. With UVXY at 10.62 they purchased 100 of the UVXY Dec 22nd 14 Calls for 0.11. In order for this trade to make money at next Friday’s close UVXY needs to rally about 32.8%. I’ll discuss this a little further below the generic payoff diagram.



I’ve been doing some work on all the volatility linked ETPs and have calculated the rolling 5-day performance for these products going back to inception. For UVXY I broke things out into 5% performance buckets and a bar chart representing this appears below.



Note on the right side of the diagram I highlighted all instances where UVXY was up 35% or more (which would result in a nice trade outcome for this call purchase). It turns out that despite 32.8% being a pretty large number, about 4.7% of 5-day performance observations resulted in a move of 35% or more. I’m not saying this trade will work out, but about 1 out of 20 times in the past the UVXY price action has resulted in this sort of short term out of the money call purchase resulting in a profit.

http://www.cboe.com/blogs/options-hub/2017/12/17/weekend-review-of-volatility-indexes-and-etps---12-11-2017---12-15-2017

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