A week ago I discussed what VIX was doing when the S&P 500 set recent records relative to SPX record highs set earlier in 2014. At that time there were 38 days where the S&P 500 had closed at a new all-time high, now the number is up to 41 with three records being set last week. The week closed with the S&P 500 at an all-time high and VIX at 13.31, slightly up on the week. I think each of us can interpret the VIX action in our own way, personally I think a lack of quantitative easing in the market place has heighted the risk perception associated with owning stocks.
The spot VIX index was slightly higher last week while the futures curve shifted lower. November contracts just have two more trading days until settlement on Wednesday morning. November VIX finished last week at 14.35 which is an interesting premium with so little time left until contract settlement.
VIX option traders are starting to focus more on December and I saw a trade come across late Friday that expects VIX to remain relatively high, but not run to the 20’s. There was a seller of 5,000 VIX Dec 16 Puts at 1.83, who also sold 5,000 VIX Dec 16 Calls at 1.28 and then finished the trade out by purchasing 5,000 of the VIX Dec 23 Calls for 0.43 (and protection against an unexpected volatility ‘event’) . All that trading comes to a net credit of 2.68 The best of all worlds, and a great Christmas for this trader, occurs if VIX settlement comes in right at 16.00 at expiration. Partial profits may still be realized with VIX between 13.28 and 18.72.