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VXX--SPY Divergence: An earling warning
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RobKidwell
Posted 2/22/2011 3:41 PM (#1998)
Subject: VXX--SPY Divergence: An earling warning


As an options trader I pay a great deal of attention to Implied Volatility. The VIX is the IV of the SP 500. The VXX is a heavily traded ETF that looks at the VIX futures: http://www.ipathetn.com/VXX-overview.jsp?investorType=pro

I noted this past weekend that VXX had risen at the same time as SPY. Normally this is an inverse relationship since IV tends to fall with rising markets. The reason that VIX Futures and VXX would rise is pretty much supply and demand--particularly on the Put side. As last week unfolded there must have been increasing demand for Put options on SP500 indices even as the underlying climbed higher. The real kicker on this is that SPY and virtually every major index was bumping up against or beyond most Standard Deviation channels and bands. So you had a rubber band that was already stretched and a clear divergence between the market and the fear/complacency measures (VIX/VXX).


(VXX vs SPY.png)




Edited by RobKidwell 2/22/2011 4:58 PM

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Attachments VXX vs SPY.png (28KB - 3 downloads)
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WesSmith
Posted 2/22/2011 6:24 PM (#1999 - in reply to #1998)
Subject: VXX--SPY Divergence: An earling warning



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Nice catch Rob
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