This Week in VIX Options and ETPs – 12/27/2013

What a difference a year makes.  This time last year we were enjoying the holidays, but did constantly keep an eye on the news regarding the fiscal cliff.  2012 finished with a small volatility spike which subsided very quickly due to a last minute deal in DC to keep life as we know it moving along.  There are no such deadlines before we ring out 2013 and ring in 2014 and subsequently there is no real activity to speak of in volatility trading.

The S&P 500 continues to make new highs and VIX is staying low.  All four of the volatility indexes that base their value on SPX option trading dropped last week and the curve shift (seen below) was about as orderly as it gets.

VXST - VIX - VXV - VXMT

I’ve been trying to do a better job keeping an eye on VXX option activity.  On Thursday, about an hour before the close someone came in and sold about 9,000 VXX Jan 10th 41 Puts at 0.83.  VXX was trading around 41.35 when this trade went off.  Breakeven at expiration is 40.17 or a drop of 1.18 (2.85%).  That’s not much of a drop for VXX – note that just this week VXX was down about 6% and these options expire in two weeks.  Despite that, so far this looks like a pretty good trade as on the close Friday this trader was looking pretty smart as VXX was up to 42.00 and these puts could be bought back for 0.66.

VIX ETNs Options