This Week in Volatility Indexes and ETPs – 7/4/2014

VXST, VXV, and VXMT closed at all-time lows on Thursday while VIX put in a post 2008 low. We can give some of the credit for the low level of VXST and VIX to the long weekend, but that shouldn’t have that much of an impact on the longer dated volatility indexes.

VXST - VIX - VXV - VXMT 

The drop in VIX and respected futures contracts resulted in about a 6% drop in the long volatility ETPs and a similar gain in the short ETPs.

VIX Indexes Options

Despite the big drop in VXX I did come across a couple of bullish VXX option trades from Thursday. There was a seller of 15,000 VXX Jul 11th 29.00 Puts at 2.11 that also purchased 15,000 VXX Jul 11th 27.50 Puts at 0.89 for a net credit of 1.22. The payoff on next Friday for this trade shows up in the diagram below and do note that this is definitely a bullish trade as the breakeven price is 27.72.

VXX PO

The other VXX spread trade from Thursday appears to be near term bullish and then longer term bearish. Someone sold over 20,000 VXX Jul 27 Puts for about 0.87 and purchased the same number of VXX Aug 25 Puts for 0.71 and a net credit of 0.16. I’m pretty certain this is not a position that is going to be held to July and then August expiration. If the intent is to hold them through expiration, then there will probably be some ‘trading around’ the long Aug put through selling some other VXX puts along the way. Here is what I do know with some certainty – if VXX is over 27.00 on July 18 and the trader takes no other action then they have a profit of 0.16 and still own the VXX Aug 25.00 Puts. If VXX is between 26.84 and 27.00 then they have a partial profit and still own the VXX Aug 25.00 Puts and below 26.84 at July expiration the trader will have a loss and that can be considered a cost of the VXX Aug 25 Puts. At that point they may also decide to sell more VXX Puts for more income against their long position.