Market Recap – August 05, 2013

Volatility posts of the day:

Glad to see Bill Luby is starting an investment management business. The world needs more people like him managing assets. Also, outstanding article by Adam Warner…one of the better ones I’ve seen lately.

Today was a rare down down for $SPY. We have experienced only 5 down days out of the last 23 trading days for $SPY. $XIV has had an even more impressive run — only 5 down days in the last 29 trading days…while posting a 60%+ gain during that period.

I was partially hedged for several of those weeks (with a short position on the Russell 2000), but even the 3% loss on the hedge was no match for the gains in my long position on $XIV and short position on $UVXY.

Trading volume continues to be light, as it is every summer. VIX term structure remains firmly in contango, supporting a ‘short volatility’ position.

From here, if the VIX falls further (and we’ve seen a 9-handle before), we will continue to see $XIV, $SVXY, and $ZIV soar while $VXX and $UVXY sink. I think the more likely scenario is that we see the volatility ETPs pause while the downward pressure of time decay battles with any potential upward pressure on the VIX absolute value.

VVIX (the volatility of volatility) closed at 69.73 today, its lowest closing value since January 2010.

Today’s charts are below, courtesy of StockCharts.com and VIX Central.

Disclosure(s): Short volatility at time of writing.

SPY daily chart VIX term structure chart - contango $NYMO $BPSPX $USHL

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