Wednesday, June 30, 2010

VXX (VIX Short Term) - Vol Up, But Vol of Vol Not in Panic Mode... Yet

VXX (VIX Short-Term ETN) closed at 30.79 up 9.3% yesterday. The LIVEVOL™ Pro Summary is below.

The Tick Chart snap (click to enlarge) illustrates a late climb in the index with a corresponding climb in front month IV. Notice also a bit of choppiness near the close.

The ETN traded over 30,000 options on total daily average option volume of just 6,611. The largest trades in order were: Jul 30 calls 1,366x bot, Jul 30 calls 1,255x bot, Aug 27 put sales, Jul 30 call sales, Jul 30 and 32 call purchases. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

Most of the trades are long the VXX and long premium (i.e. long the vol of vol).

The VIX (not VXX) Charts Tab (6 months) is below (click to enlarge). The top portion is the index spot, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

You can see the literal "V" shaped chart on top. On the bottom (vols), notice that the IV30™ for the VIX is still below the HV20™.

Now let's look at the VXX (click to enlarge) Charts Tab (6 months).

You can see the "V" is almost identical to the VIX. The VXX IV30™ however (~79) is in fact greater than the HV20™ (~69). Fears of Europe have crept back, but the uncertainty isn't as great as it was a few months ago. It seems like the market participants see Europe as potentially bad news, but somehow not catastrophic. I guess we'll see. Keep an eye on the IV30™ of the VIX, if it spikes again, panic mode is starting and huge down days can ensure on not necessarily huge news. It also might be an opportunity to sell the VIX vol even if you're staying short the broader market.

On a side note, with the Dow Jones Industrial Average below 10,000, I remember the first time it went over that number. I was a young pup at PaineWebber (now UBS). That was March 29, 1999. More than 11 years later, we're still here.

This is trade analysis, not a recommendation.

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