This Week in VIX Options and ETPs

The S&P 500 was under pressure again this last week dropping over 2% and VIX responded with a rally of about 12.5%. With the bearish move in stocks, VIX closed over 16 three of five days this past week. Buying of VIX options on the heels of a higher VIX pushed VVIX up to the low 90’s. We have spent most of the past few weeks with VVIX in the 80 range. Keep in mind the VIX of VIX range is usually somewhere between the low 80’s to around 120 on the high end. Implied volatility in the 90’s looks high, but in the VIX arena it is still on the low end.

October option trading has been fairly quiet, but one trade that caught my eye on Friday was a buyer of 20,000 VIX Oct 17 Calls in the 0.40 – 0.45 range. If held to expiration, VIX needs to rise to 17.45 for this trade to make money. There are only two more trading days until VIX expiration on Wednesday. On the other side of the VIX equation there has been buyer of the Oct VIX 16 Straddle paying around 1.35 up until Thursday. This trade would also make money with VIX in the mid 17’s or higher at October expiration. In addition to these traders our friend Andrew Keane blogged a couple of VIX option trades that caught his eye last week. Those blogs may be found at the following links –

http://www.cboeoptionshub.com/2012/10/12/vix-put-ratio-spread-with-october-options-by-andrew-keene-2012-10-12-1-30/

http://www.cboeoptionshub.com/2012/10/11/lets-analyze-a-large-vix-trade-today-by-andrew-keene-2012-10-11-11-59/

Long only VIX exchange traded products were mostly higher in sync with VIX moving up on the week. The lone exception was VXZ which focuses on longer dated futures contracts which were actually lower last week. On the flip side the short volatility exchange traded products got hit while hedged portfolios did as well based on the weakness of their underlying markets.

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