This Week in VIX Options and ETNs

The week started off with a bang due to what was going on in the gold market and some global economic concerns.  VIX option trading actually experienced the second busiest volume day on record.  The trading was actually heavy in puts as well as calls.  Traders were putting on short term position in the April puts with the expectation that VIX would come in quickly before Wednesday settlement.  The increased buying in both calls and puts this week pushed VVIX over 100 for the first time this year.   Toward the end of the week activity came back to normal with positions that benefit from a spike in VIX being implemented.  One interesting example on Friday involved a trade where the VIX May 15 Straddle was sold and there was a buyer of VIX May 17 Calls.  If held to expiration the payout for this trade appears below –

VIX Trade Payout

In the ETN space the shorter dated long VIX products had a good week benefitting from higher VIX and a flattening of the curve.  It was also noted that VXX does not get as much decay from the shape of the VIX curve when the curve is flat or in backwardation.  This point was being made regarding VIX puts as the VIX puts may be a more logical method to play a lower outlook for volatility in those situations.  However, if one expects higher volatility to continue then the ETNs are worth consideration.

VIX Options