This Week in VIX – 9/26/2014

VIX was higher on the week, peaking out well over 16 on Thursday before working back down to14.85 to end the week. There were lots of grumblings about VIX being nowhere near the high of the day on the close on Thursday despite the S&P 500 finishing up very near the low of the day. I’ve heard that this could be taken as a signal that the stock market was not expected to follow through on the downside on Friday and that may be true. Also, keep in mind for probably two years whenever VIX moves up, it comes back down fairly quickly. This pattern continues to repeat itself, but much more quickly than it did a few months ago.

VIX PA

The VIX term structure remains in contango despite the run up in VIX, although a little flatter than the previous week. In fact the October future closed at 15.80 while spot VIX closed at 15.64. No official backwardation when comparing those two levels despite the scary day for the S&P 500.

VIX Curve

Finally on Thursday there seemed to be several bearish option trades coming into the VIX option arena.   One example was a seller of the VIX Oct 17 Calls at 1.35 who also purchased the VIX Oct 22 Calls for 0.60 and a net credit of 0.75. The payout if held to October expiration (10/22) appears below. Note that settlement under 17.00 results in the credit of 0.75 turning into a profit. Interestingly the last VIX settlement over 17.00 was October 2013 at 17.21.

VIX PO