This Week in VIX – 12/13/2013

The S&P 500 posted the worst week in some time and VIX reacted by climbing over 14%.  Beyond that, the December futures, which expires after two more trading days was at a slight discount to VIX.  Come Wednesday morning we will know if futures traders got it right as far as expected a lower than 15.76 settlement price for December VIX futures and options.  It is worth noting that December VXN and RXV contracts were actually as a premium to their indexes based on Friday’s settlement.  I’ll be keeping an eye on settlement this week and probably post observations in this space.

With a solid 2013 almost in the books, traders are looking out to 2014.  I found it interesting that January VIX futures closed at a discount to the index as well.  It appears that expectations are for no January drama related to budget negotiations in Washington, DC.  One trader does have concerns about the equity market and the April time frame.  Mid-week a trader purchased 40,000 VIX Apr 22 Calls at an average price of 1.28 and a total cost of just over $5,000,000.  This trade requires VIX to get up into the low to mid 20’s to be successful.  A jolt to the stock market is what would be required for a move like that.  As always time will tell.

VIX Futures