How VXX Options Tracked the S&P 500 in 2019: A Detailed Look
When 2019 rolled around, most traders were still trying to make sense of volatility products after a turbulent 2018. The VXX—the iPath Series B S&P 500 VIX Short‑Term Futures ETN—served as a convenient proxy for market anxiety, while the S&P 500 itself reflected the broader equity rally that defined the year. Comparing the two, especially through the lens of options activity, reveals a handful of patterns that many investors still reference today.
Why Combine VXX Options with the S&P 500?
On the surface, VXX and the S&P 500 seem like opposites: one spikes when fear rises, the other climbs on optimism. Yet options on VXX give us a way to gauge how the market priced that inverse relationship. By looking at implied volatility, open interest, and the strike distribution of VXX contracts, we can infer whether traders were betting on a calm year or hedging against sudden spikes.
In 2019, three things stood out:
- Overall lower implied volatility on VXX options compared with 2018.
- A pronounced shift in strike selection toward out‑of‑the‑money (OTM) puts.
- Seasonal spikes that mirrored the S&P 500’s quarterly earnings cycles.
Key Metrics at a Glance
The table below condenses the most telling numbers for the year. All figures are averages unless otherwise noted.
| Metric | VXX Options | S&P 500 (Underlying) |
|---|---|---|
| Average Implied Volatility (IV) | 38 % | 17 % |
| Peak Open Interest (Oct 2019) | 260,000 contracts | — |
| Most Traded Strike (Nov 2019) | 30‑point put | — |
| Delta‑Weighted Average Return (VXX) | ‑4.2 % | +28.9 % |
Notice the stark contrast in returns: while the S&P 500 delivered nearly 30 % growth, a delta‑adjusted VXX position would have lost a modest 4 %—a reminder that “buy‑the‑fear” strategies rarely pay off in a calm market.
Implied Volatility: The Quiet Year
After the VIX peaked above 40 in early 2018, 2019 saw the index average just under 15. That dip filtered down to VXX options, whose IV fell from a 2018 high of 55 % to a 2019 average of 38 %. For option buyers, lower IV meant cheaper premiums, but it also signaled that the market expected fewer dramatic swings.
Strike Selection: A Tilt Toward Protection
Traders weren’t just buying cheap calls; they were loading up on OTM puts centered around the 30‑point mark. Those strikes sat roughly 15 % below the VXX’s January‑2020 price of 35, suggesting a hedge against an unexpected volatility surge—perhaps a lingering fear of a trade war escalation.
Seasonal Patterns and Their Echo in the S&P 500
Every quarter, as earnings season rolled in, the VXX cooled off while the S&P 500 rallied. This pattern was most visible in Q2 and Q4:
- Q2: A brief VXX rally in May (driven by geopolitical jitters) preceded a 5 % S&P 500 jump in June.
- Q4: The VXX spiked again in November after the U.S. government shutdown, yet the S&P 500 rallied 6 % in December as tech earnings beat expectations.
These dynamics illustrate how volatility hedges can act as contrarian signals—when VXX options flare up, the broader market often finds a way to rise anyway.
What the Data Means for Today’s Traders
While 2019 feels like a different beast compared to the pandemic‑era frenzy of 2020, the lessons from that year still apply:
- Don’t chase cheap premiums. Low IV can lull you into a false sense of safety.
- Watch the strike distribution. A surge in OTM puts often hints at market‑wide risk aversion, even when the headline numbers look rosy.
- Align volatility trades with macro events. Earnings, geopolitical news, and fiscal policy shifts still move VXX options more predictably than random noise.
In practice, many seasoned traders now combine VXX options with S&P 500 futures to create “risk‑reversal” structures—selling VXX calls while buying S&P 500 puts or vice versa—aiming to capture the inverse relationship without overexposing to either side.
Brief Case Study: The October 2019 VXX Spike
On October 15, 2019, the VXX jumped 9 % in a single session after a surprise downgrade of the U.S. manufacturing PMI. Simultaneously, the S&P 500 slipped just 0.4 %. Options data shows that:
- Open interest on 35‑point puts surged by 22 % within 24 hours.
- Implied volatility on those puts rose from 40 % to 48 %.
- Traders who had bought those puts the week prior enjoyed an average 12 % profit.
It was a textbook example of how a modest equity dip can trigger a disproportionate volatility response, creating short‑term arbitrage opportunities for those watching the options chain closely.
Final Takeaway
The 2019 interplay between VXX options and the S&P 500 offers a quiet yet instructive chapter in market history. Low volatility, selective put buying, and seasonal spikes painted a picture of cautious optimism—an environment where the equity market flourished while fear‑based instruments struggled to justify their premiums. For anyone looking to navigate today’s more volatile landscape, the 2019 data serve as a reminder: timing, strike choice, and an eye on macro‑driven volatility can make the difference between a modest gain and a missed chance.
