This Week in VIX Options and ETNs – 4/26/2013

The stock market was VIX was lower and so were the front two month futures contracts last week.  This put the typical pressure on VXX to goes along with lower VIX.   VXX lost about 6% on the week and settled at 19.24.  The shift of the VIX curve was pretty consistent across all expirations which resulted in VXZ dropping over 5% finishing the week at 20.21.  It was noted on Friday morning that the VXX weekly 19.50 straddle was pretty active in the morning.  A buyer was paying 0.40 for long positions in both the VXX 19.50 Call and VXX 19.50 Put that expired that afternoon.  It is possible the thinking was something was going to give one way or another by the close.  Unfortunately for the buyer whatever their something thought was didn’t happen.  However, it was interesting to see Weeklys are being used even for a volatility outlook that lasts just a few hours.

In the VIX option area there were a few things catching the attention of traders.  On a monthly basis there seems to be a big buyer of a Call Stupid.  No one likes to be called stupid and if Maggie or Emmy use that term in the Rhoads household I go for the soap.  A Call Stupid is when a trader is taking a bullish directional bet by purchasing two call options with different strike prices that have the same expiration.  The floor guys came up with the ‘stupid’ moniker for these trades as there is no spreading off of risk when two calls are bought like this.  The specific trade that came in Monday, Tuesday, and Wednesday in size was the May 19 / 23 Call Stupid where both calls were being purchased.  The buyer did not come back on Thursday or Friday so they may be done for May expiration.  Also, it was noted there is some early demand for June VIX call options even though there are a few weeks left until May goes off the board.  The demand shifting out to June combined with a little less demand for May calls toward the end of the week contributed to the slide for VVIX which lost about 10 points on the week.

ETN1