VIX was up despite a fairly flat week over week performance for the S&P 500. Part of this goes with the three day weekend effect, but there is also a nervousness that seems to be creeping into the market. Depending on your market outlook this could either be considered bullish or bearish – bullish if you believe the market climbs a ‘wall of worry’ or bearish if you think that higher volatility can be a precursor to a bearish equity market.
One trade on Friday in VIX options caught my eye. There was a buyer of VIX Mar 17 Calls at 0.74 who sold twice as many of the VIX Mar 22 Calls at 0.30 each creating a ratio spread at a net cost of 0.14. A moderate spike in volatility (ideally the March future at 22.00) would be a positive in this case, while a volatility ‘event’ that pushes VIX to the upper 20’s could be a problem. The payoff diagram below shows just how this would work –
As far as the curve goes, VIX climbed 8% and the March future rose 0.45. Beyond that the rest of the VIX futures curve was pretty inactive last week.