VIX was slightly higher and the futures were mostly lower with a couple of exceptions last week. There was a bit of excitement in the middle of the week so I included an extra piece to the graph below and decided to show Wednesday’s highs for VIX and the futures market. If I had not done that it would be pretty difficult to see there are two different lines showing VIX closing levels on the 1st and the 8th.
We all know that Friday was the employment number with the stock market rallying in response and VIX dropping as would be expected. On Thursday there was a sizable trade I came across that appeared to be setting up for a spike in VIX. In several different lots at the same time on the tape there was a buyer of VIX May 14.50 Puts at 0.58, seller of VIX May 16 Puts at 1.60, buyer of VIX May 16 Calls at 1.00 who finished things up by selling VIX May 20.00 Calls for 0.49. The result of this buying and selling was a credit of 0.51 and a payout at expiration that appears below with where VIX and the May VIX futures were when the trade was executed.
The payoff above looks just like a vertical spread with the 14.50 (call or put) as the long leg and 20.00 (call or put). I believe this was done in four legs so there is more flexibility in trading around the position.
Finally, I have no way of knowing, unless I spoke directly to the trader, but my assumption was this trade went up in front of the employment number. I did go searching for what may have been exit trades on Friday and wasn’t able to find anything that looked like someone salvaging this trade as VIX moved lower. Any spike in VIX next week and I’ll be doing some detective work to see if this position is lighted up.