There were multiple signs of a climactic volatility event last Thursday
It was just two short weeks ago in this space that we found ourselves looking askance at the state of the short volatility trade. And in the aftermath of last week's rapid-fire sell-off in stocks -- which was accompanied by the de rigueur spike in the Cboe Volatility Index (VIX) -- it's worth "assessing the damage" by way of a check-in with the iPath S&P 500 VIX Short-Term Futures ETN (VXX).
VXX ended last week on a gain of 19.9%, which marked its biggest weekly advance since late March. The surge in this VIX futures tracker didn't go unnoticed by speculative traders; on Thursday, call volume on VXX arrived at a steep 343,532 contracts. That marks the exchange-traded note's (ETN's) biggest one-day call volume since Feb. 6 of this year, when over 399,000 calls crossed the tape.
Echoing the day's explosion in call trading, Thursday's share volume in VXX ramped up to 140.44 million. That was the highest single-day total since -- you guessed it -- Feb. 6, when 142.97 million shares were traded.
Per the accompanying VXX chart, the ETN settled Thursday's session at $36.87, just a hair's breadth above its descending 320-day moving average at $36.84. The photo finish above this trendline, which previously contained the late-March/early April VXX incursion, directly preceded Friday morning's sharply lower open for VXX.
Despite these various signs of a "climactic" volatility event last Thursday, VXX moved off those early Friday morning lows as the week wound to a close. And by shortly after the session's halfway point, the ETN had climbed high enough to re-test the resistance of its 320-day moving average. However, VXX's attempts to sustain a move onto positive ground ultimately proved futile, and it closed down by 7.7% on the day.
To provide some additional (and valuable) context to our list of "Feb 6. vs. Oct. 11" comparisons, the Feb. 6 VXX high rang in at $54.97, whereas last Thursday's intraday peak was about 30% south of that high-water mark, at $38.69. That's analogous with the lower "panic highs" in VIX itself; the fear index achieved its year-to-date high of 50.30 on Feb. 6, and put in an eight-month high of 28.84 on Thursday last week.
With volatility jolting back to life after a lengthy slumber, it may yet be premature to say that the extremes in VXX share and option volume last Thursday may have marked the height of the current hysteria. In the meantime, the 320-day moving average should prove to be a trendline worth watching, as a break by VXX above and away from this descending ceiling would be truly remarkable.
Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, October 14.