S&P 500 Index (SPX) 2476.55 added another 33.50 points or +1.37% for the week closing back above the 50-day moving average now at 2452.65, the blue line in the charts below. The risk that the rebound could be limited to the top of the downward sloping channel trendline and then retest 2400 detailed in Digest Issue 34 “Pull Back Ending [Charts]” faded last Wednesday at it closed above top of the downward sloping channel trendline and then confirmed Thursday as the advance continued on accelerating volume. Next, a retest of the August 8 intraday high at 2490.87at the top of the upper channel.

VIX Futures Premium

The chart below shows as our calculation of Larry McMillan’s day-weighted average between the first and second-month futures contracts.

30.58% up from 18.65% last week and up from the pivot at -1.39 week ending 8-11-17. Now at the top of the range.

With 12 trading days until the September expiration, the day-weighted premium between September and October allocated 48% to September and 52% to October for a positive 30.58% premium as the futures remain elevated as VIX declines.

The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front-month future converges with the VIX at expiration.

VIX Carry Trade

ProShares Short VIX Short-Term Futures (SVXY) 80.31closed up 2.35 points or +3.01% for the week. Of the two inverse ETFs that short VIX futures and advance as the VIX declines, SVXY has listed options with enough volume and open interest to consider. Since the futures currently trade above the cash VIX, (contango) until front-month future converges with the VIX at expiration as the front-month futures decline approaching expiration the short futures ETF advances capturing the futures premium loss.

The current Historical Volatility is 85.55 and 54.60 using the Parkinson’s range method, with an Implied Volatility Index Mean of 58.06 down from 63.29 and likely to continue back down toward 50. The implied volatility/historical volatility ratio using the range method is 1.06 so option prices are inexpensive relative to the recent movement of the ETF. Friday’s option volume was 34,668 contracts with the 5-day average of 32,050 contracts with wide bid/ask spreads reflecting lower options volume.