VIX under 14.00 signals that the market is not too concerned about a volatility event over the next few weeks. I noticed on Friday that there seemed to be several block trades in the VIX options that seem to be looking past April expiration to May. A particular one that caught my eye was a buyer of over 40,000 VIX May 18 Calls at 0.89 that also sold the same number of VIX May 25 Calls at 0.28 for a net cost of 0.61. The payout for this trade, if held through May expiration, appears on the payout diagram below.
Monday morning quarterbacking is very easy as is second guessing trades – both of which I try to avoid. However, I saw this trade and it occurred to me to check when VIX had last topped 25.00 – we need to go back to June 2012 or almost two years since VIX last closed over that level. If this trader is targeting 25.00 for VIX they are expecting something dramatic on the downside in the S&P 500 over the next few weeks.
The futures curve shifted down in a pretty orderly fashion across the spectrum of available VIX futures. This was despite the bearish activity that popped up on Friday which was mostly focused on the tech heavy Nasdaq-100.