It was a volatile week with a ridiculous Monday-Tuesday
rally driving every point on the VIX futures curve one full standard deviation below
historical averages before the big move up in the second half of the week. Front month VIX futures (January) saw big gains
this week as traders rolled over their protection with December options expiring (as predicted last week).
VIX Futures Weekly
Performance:
Jan-13
|
Feb-13
|
Mar-13
|
Apr-13
|
May-13
|
Jun-13
|
Jul-13
|
+6.1%
|
+1.6%
|
+1.3%
|
+0.5%
|
+0.2%
|
-0.5%
|
-0.2%
|
After seeing these numbers you might be surprised to learn that S&P 500 actually closed up 1.1% on the week. At this point it seems that traders who wanted to buy protection have done so, making a short-term trade in shorting front month volatility (by buying XIV) somewhat attractive. However, due to the complete unpredictability of negotiations in Washington as we approach year end this still a bit like playing with fire. Might as well stay in cash and enjoy the holidays.
VIX term structure at the close of each day this week:
