Schaeffer's Trading Floor Blog

National VIX Churn Week, Part 75

The numbers behind the past week's market churn

by 5/11/2014 6:39 PM
Stocks quoted in this article:

We've talked about The Great 2014 Churn over and over again. You might say it's a churn of posts about churning. But I will submit that this past week took the churning cake.

The SPDR S&P 500 ETF Trust (SPY) closed at $188.06 on May 2. This past Friday, it closed at … $187.96, for a drop of $0.10! The closes ranged from a high of $188.42 (on Monday) to a low of $186.78 (on Tuesday). Now that's some uninteresting action!

Even if you look at the highs and lows, it's not all that range-y either. We ventured as high as $189.05 on Thursday, and ticked as low as $186.01 on Wednesday. That's only about 1.6% -- remember that's not a day, but an entire week.

The CBOE Volatility Index (VIX) responded to all of this by gaining One Shiny Penny. Seriously … it was up 0.01 on the week. That's an under-reaction as it should rally almost 0.02 on a 0.10 dip in SPY. Sell everything! … or maybe Buy Everything!

…OK, I kid.

We did actually see some action in iPath S&P 500 VIX Short-Term Futures ETN (VXX). After taking over a quarter of the year to resume its general behavior as a drifting asset vacuum, VXX finally started hitting all-time lows again, beginning on May 2. In fact, it liked doing it so much, it happened for five straight days. The streak ended Friday by a penny. So, we're up to one day in a row without an accident.

I'm not entirely sure why VIX futures, and in turn, VXX, held up relatively well for a quarter of a year. As such, I'm also not sure why that ended this week. All told, VXX drifted 4.3% on the week on a closing basis. That's far from catastrophic, and it's also far from unusual. In the entirety of its existence, VXX has averaged a drift of 1.57% during any random five-trading day stretch. So perhaps this was nothing more than a little mean reversion going on.

About those VIX futures … they really did give up the ghost a bit this week. Here's the change in the term structure since May 2.

VIX Futures Historical Prices, May 2 and Now
Chart courtesy of VIX Central

That may not look like much, but it's a good 0.50 or so off the average VIX future, and pretty uniform across the entire VIX board. It's noteworthy in the context of a completely flat week in SPY and VIX. Again … no idea why that suddenly inspires anyone to have less interest in a VIX future six months out. But perhaps a better question is why they wanted these futures a week ago? We're going nowhere -- slowly -- at least as far as big-cap is concerned. Lowering the board a little does make sense.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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