VIX ended up the week pretty low, but not at the post 2008 lows we all like to focus on. Since the end of the great financial crisis VIX has closed at 11.30 twice – last year on both March 14 and 15. From March 15, 2013 to this past Friday (May 23, 2014) the S&P 500 has climbed from 1560.70 to 1900.53 – a rise of 21.77% and VIX has not made a new low.
There was an interesting VIX option trade earlier this past week that is looking for VIX to remain at low levels over the summer time. On Wednesday there was a seller of 151,000 VIX Sep 19 Calls at 1.29 who also purchased 151,000 VIX Sep 28 Calls for 0.44 and a net credit of 0.85. The payoff diagram below shows that the risk is definitely to the upside. As long as VIX is below 19.00 at September expiration the trade results in a profit per contract of 0.85.
As far as the VIX term structure curve goes, it appears the volatility market is expecting more of the same or low volatility as we now enter (unofficially) the summer season.