VIX rallied over 34% on Monday as the Greece situation worsened and global equity markets sold off. The front month July VIX contract gained just under 20%. As the week progressed we gained insight into June economic activity with an unusual Thursday release of the non-farm payroll report. The stock market moved on quickly and VIX and the July future both finished the week with a 16 handle. The curve, which moved to backwardation on Monday finished the week in contango, but a much flatter version of contango than we have witnessed as of late.
On Thursday last week I came across a trade I do not normally see executed in the VIX pit. There was a broken wing butterfly that involved selling the VIX Jul 20 Call at 1.22 and VIX Jul 20 Put at 4.24. For downside protection the VIX Jul 14 Put was purchased for 0.33 and to the upside the VIX Jul 25 Call was bought at 0.63. All this activity resulted in a credit of 4.50. Those that are quick with numbers will notice that the long put is six points lower than the short option strike while the call is five points higher.
Note the July VIX futures and spot VIX closed with a 16 handle on Thursday. That means the trader behind this particular position is hoping for higher VIX with a specific target of 20.00 at July expiration. Normally we think of any time of butterfly having a neutral price outlook, that’s not the case in this instance.