This Week in VIX Options and ETPs – 7/19/2013

In VIX options August became the front month with July VIX contracts settling on Friday.  As VIX continues to drift lower closing under 13 for the first time since mid-May VVIX also was at relatively low levels finishing Friday at 73.64.  The lowest levels for each in 2013 are 11.30 for VIX and 70.45 for VVIX.  On the trading side the interest on Friday was with the VIX Aug 16 Calls with over 50,000 contracts changing hands.

More new highs in the S&P 500 and lower VIX put expected pressure on the long VIX exchange traded products.  Another factor that is never as obvious was that the curve of VIX pricing continues to be on contango.  The premium of September (now the second month) to August went out on Friday at 1.60 continues to place an extra headwind in front of VXX and the other long ETNs.  Apparently one trader believes VXX will be heading lower as optionMonster pointed out there was a big seller (over 18,000 contracts) of the VXX Sep 26 Calls at 0.26.  Although that is 10 points higher than VXX’s current value that sort of trade is not for the faint of heart as VXX can (and will at some point) move quickly to the upside.

VIX Options ETNs

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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