This Week in VIX – 8/15/2014

The majority of the price charts I use for these blogs look just like the chart below this week. Trending down from day to day with a little bit of excitement this past Friday. An S&P 500 rebound from the previous week put pressure on volatility along with a fairly tame earnings and economic calendar over the next few weeks. The only market concern on Friday was any potential escalation of global conflict.

VIX PA

There are two trading days remaining until August VIX expiration and the futures went out Friday at only a 0.10 premium relative to the index. The VXN and RVX futures were at a much greater premium which is interesting since VIX usually reacts more to macro situations such as war.

VIX FUT

This coming Wednesday is August VIX expiration as this is one of the four months of the year where volatility futures and option settle the week after standard option expiration. On Thursday VIX closed at 12.42 and the August VIX future closed at 12.95. Someone came in mid-morning Thursday and did a trade that appears to be hoping for a pop before August expiration. They bought 4,800 of the VIX Aug 15 Calls for 0.19 and sold 4,800 of the VIX Aug 16 Calls for 0.11 and a net cost of 0.08. A VIX spike and August settlement at 16.00 or higher would result in a profit of 0.92 for this trade. The payoff diagram below tells the whole story –

VIX PO