More Color on the Big $VIX Trade

I get to CBOE each morning about 7:15 and by 7:16 I was running around the floor trying to find out a little more about the VIX roll from yesterday.

First, I’ll start at the beginning. It appears this all began back on April 10th when the trade that got rolled forward yesterday was opened. Back in April about 180,000 VIX Jun 17 Calls were purchased for 1.74 and about 360,000 VIX Jun 23 Calls were sold at 0.82. I keep using ‘about’ as a hedge clause because the actual trade size is an odd number, but pretty close to 180,000 and 360,000 respectively. To break this down to a more manageable size and cost, the original trade was a 1 x 2 ratio call spread for a cost of 0.10.

Yesterday the trade was rolled out to July. To keep things simple I’m going to break out the closing transaction and the opening trade. First, the VIX Jun 17 Calls were sold for 1.20 for each of the two VIX Jun 23 Calls that were purchased 0.50. This results in a credit of 0.20 per spread and an unrealized profit of 0.10 on the June option position – they paid 0.10 to get into this spread and received 0.20 when they got out.

The July ratio spread involved the VIX Jul 17 Calls being purchased for 1.89 (some were at 1.88, but I’m using 1.89 to keep the math simple) and the VIX Jul 23 Calls were sold at 0.90 each for a net cost of 0.89. Taking the running profits from the June trades (again 0.10) and some rounding, we can say this July 1 x 2 ratio call spread was put on even (excluding commissions). The payout below assumes a the June profit combined with the July leg cost results in net even and that the trade is held through July expiration.

VIX Ratio PO


The best case scenario here is VIX at 23.00 at July expiration and all is well until VIX rises to 29.00 with losses being incurred above that level on a one for one basis with VIX.

  • Dan

    Can you explain the math in the article? Something isn’t adding up when I try to work out the original position open/close, prior to the roll. I show a .54 loss on the June 17 Calls and a .32 gain on the June 23 Calls. Taking into account the volume difference, it is a .10 gain. The original trade was a .10 debit. Shouldn’t the roll be zero?