This Week in VIX Options and ETNs – 6/28/2013

In VIX Option activity the focus seems to be moving early to August trading.  I say early as the second month focus usually comes a week or two before the front month expiration.  The pending holiday week probably contributed to traders beginning to look to August.  Wednesday there was a buyer of over 100,000 VIX Aug 28.00 – 37.50 Call Spreads for 0.60.  Another interesting trade showed up on Thursday where there was a seller of the August 19 Straddle who also purchased the August 22 Call for a net credit of 3.05.  The payoff diagram for this multi leg trade is below showing the maximum gain at expiration is 3.05 if VIX settles at 19.00, above 22.00 this trade results in a profit of 0.05, and finally below 15.95 there is risk to the trade.  VIX Option Trade Payoff

In the exchange traded product space VXX was down about 4% on the heels of the 10% drop in VIX.  VXX consists of positions in July and August VIX futures and those contracts were down 5% and 2 1/2% respectively.   The VXX options spaces is a pretty active arena, busier than QQQ on Friday.  There are a couple of interesting trades in that space as well.  With VIX and VXX higher this week a trader sold 16,000 of the short dated VXX July 5th 28 Calls and there appears to be a similar established position of 44,000 VXX Jul 20th 28 Calls.  Do keep in mind, VXX does have a sort of headwind related to futures pricing being in contango the majority of trading days, but when VIX spikes and the curve goes into backwardation VXX can move hard and fast to the upside.

Options ETNs