This Week in VIX Options and ETPs

The spot VIX index closed up over 12% on the week which is pretty startling when considering the S&P 500 was off only 0.50%. However, a couple of factors come into play that results in this big VIX move making a little bit more sense. First, we are coming off a pretty low base with VIX closing at 13.45 last Friday.  Also, September is looming and September is one of those months that always seem to cause a bit of concern among market participants. 

Checking out the exchange traded product space, it is impossible not to note the disconnection between the long VIX related ETP’s. Remember, these ETPs base their performance on holding VIX futures and those contracts did not move up in line with VIX. The result is that these exchange traded products were up between 1 and 3% on the week.

Things were a bit atypical for expiration week in the VIX option arena. This week was expiration week for August contracts and settlement came in at 15.13. August option activity had been very quiet, but on Monday there was a big seller of VIX Aug 16 Calls at 0.25. This trade worked out well if held until expiration as those contracts expired out of the money. Later in the week the big trading activity focused on September contracts. With the September VIX futures trading at 19.00 on Wednesday there was a big seller of VIX Sep 19 Calls, which is a trade that will work well if VIX stays in the mid-teens over the next few weeks. In the other direction there were buyers of September VIX Calls that will pay out if a market event results in a spike in VIX over the next few weeks. Specifically buy interest showed up in VIX Sep 23, VIX Sep 25, and VIX Sep 28 Call options this past week.