Friday, despite the equity market being under pressure many of the VIX option trades appeared to be more bearish on VIX (or bullish on stocks). A fine example would be a seller of VIX Feb 16 Calls who then purchased VIX Feb 20 Calls for a net credit of about 1.20. The goal, if the goal involves holding the trade to expiration is for VIX settlement to come in under 1.20 and the options to expire out of the money. We’ll see how this works in a couple of weeks.
My spot at CBOE is about 100 feet and three walls away from the VIX pit. This past week I heard more out of those guys than I normally hear in a month. VIX Option trading volume set a record last month and VIX futures volume was a close second to an all-time high. Seeing that the S&P 500 was basically down 8 points on a week over week basis does not tell the story of last week. Not by a long shot.
The real change in the VIX appeared in the term structure curve that appears below. Note that VIX was up slightly, but the near dated futures contracts played some catch up last week. The shape of the curve is still in a version of backwardation, but not nearly where we were a week ago.