This Week in VIX – 6/27/2014

After a few dips the S&P 500 managed to put up a slight gain last week. We have been through months of small sell offs consistently rebounding and the pattern seems to be repeating. This repetition has changed a little, with smaller market dips and quicker rebounds. Those of you that saw what the S&P 500 did in reaction to the GDP report last week know what I’m talking about.

VIX PA

The VIX curve twisted a bit as the index rose and all the futures lost value last week. VIX really didn’t have much room to drop on the downside, so a gain was probably inevitable unless the S&P 500 rallied strongly last week (which it didn’t).

VIX

Friday afternoon the floor was pretty quiet which is status quo when the Cubs are in town and the markets aren’t doing much. However, there was a bullish VIX trade that caught my eye with about 90 minutes left in the trading week. There was a buyer of the VIX July 13.50 Calls at 0.61 that sold the VIX July 17.00 Calls at 0.27 and a net cost (sans commissions) of 0.34. This trade gave me two opportunities, first to show how someone is getting relatively cheap long volatility exposure using VIX options. The other opportunity is to point out that the front month VIX options have strikes in 0.50 increments. This is a fairly new development in VIX trading. The payout at expiration for this VIX July 13.50 / 17.00 Call Spread appears below with Friday’s VIX and July VIX futures closing prices highlighted on the diagram.

VIX 13.50 - 17.00 PO

  • Tanya

    Hi Russell, just wondering what is your view on the VIX curve for this week? Thanks