VIX week in Review

VIX, the CBOE S&P 500 Options Volatility Index, also known as the “fear” indicator,” bounces along the bottom.

The VIX had an interesting week as it closed on Monday at 15.04 and ended the week at 14.82. These readings represented the VIX’s lowest levels since July 2007, and looks similar to April ,2011, when the VIX’s monthly low reached 14.30.

At that time, the market saw prices drop 20 percent.

But this time, investors appear unconcerned about risk and the financial media hasn’t stirred up a frenzy about recent low prices. After last week’s triple witching, it’s common for volatility to re-balance with lower prices and the market to possibly sell off.

Looking ahead to this week, the market will watch numerous data points including factory activity, housing numbers and yet another look at the economy from fourth quarter GDP figures. New numbers to digest will include consumer sentiment, income and spending reports.

iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) The week didn’t start off too badly for VXX with Monday’s close of 20.26 but by week’s end, the ETN had fallen to 17.30. It had incurred two consecutive days (Tuesday and Wednesday) of declines leading to a cumulative 10 percent loss. From Wednesday’s sell off, VXX is now down close to 50 percent so far this  year.

A number of factors affected VXX’s drop this week. The market struggled with unsettled trading and the VXX faced selling pressure, including the effect from the TVIX fallout. It also faced supply and demand challenges (yes, there were also those five-year lows) and traded lower due to the the rollover of the underlying contract.

VelocityShares Daily Inverse VIX Short Term ETN (NYSEARCA:XIV) For XIV, the week began with a 10.58 Monday close and by Friday, it had increased to 12.24. Wednesday was the big day for the ETN as it increased 4.80% to close at $11.58. The increase represented the fifth consecutive day to end the session with a higher close.

VelocityShares Daily 2x VIX Short Term ETN (NYSEARCA:TVIX) It was a wild week for TVIX going from a Monday close of 15.07, down to 7.16 by Friday.

Here’s what happened. The dive began on Wednesday after rumors swirled that the ETN’s issuer, Credit Suisse, said the product will open for a limited issuance after being closed in February. The news became official after the close on Thursday but before then, TVIX dropped 30% that day.

On Friday, it dropped another 3o%. The price’s quick change startled investors and panic selling followed. Analysts had said the product isn’t great for the long-term and that investor education is needed to trade it as buyers have not been fully aware of the risks.

From Thursday to Friday, TVIX saw a 50% loss of value. Volume was high on both days with 30 million shares changing hands on Thursday and 27 million on the following day.

Bottom line: VIX continues plumbing multi-year lows as complacency runs high in U.S. markets.  Such low levels can often lead to significant stock market declines (when VIX is low, it’s time to go) and this week proved that volatility can be volatile, sometimes shockingly so, as TVIX lit up traders’ screens with bright red numbers.