The Week in VIX – 7/13 – 7/17

VIX closed at 11.95 which is the low for 2015 on Friday and below 12.00 for the first time this year. The week over week drop for VIX was 29% which is the third biggest one week drop in the history of VIX. The curve shifted accordingly, but do note with only two trading days to go the July futures finished the week just about a point higher than spot VIX.

VIX Curves

I’m away from CBOE this week, but never away from the markets. I did note via my twitter feed the history of the market the day after VIX moved under 12.00 intraday in 2015. It is not much of a history as Thursday was the third time this happened which was of course followed by Friday’s action. Here’s a brief review of what I tweeted out with an update for the Thursday and Friday price action.

  • May 22nd – VIX low was under 12 for the first time in 2015 – next trading day SPX was down 21.88
  • June 23rd – VIX low was under 12 for the second time in 2015 – next trading day SPX was down 15.61
  • July 16th – VIX low was under 12 for the third time in 2015 – next trading day SPX was up 2.35

So Friday broke the mini-streak of the S&P 500 dropping the day after the handle for VIX hit 11 on the day.

Next week the CBOE Futures Exchange will introduce futures contracts expiring every week. Options will follow in the next few weeks pending regulatory approval. I have been paying particular attention to trades executed in VIX options when expiration is just a few days off ever since the announcement that VIX Weeklys were on the way. On Friday, VIX was hovering around 12 (12.04) to be specific, and a pretty unique trade came into the VIX pit. There was a buyer of the 863 VIX Jul 12.50 puts at 0.25 who also sold 863 VIX Jul 12.50 Calls for 0.75. In addition they sold 3750 VIX Jul 13.00 Calls at 0.54 and purchased 3750 VIX Jul 14.00 Calls at 0.30. The net result of these trades was a credit (before commissions) of $133,150. I divided up the trades in the table below.

VIX Trades

The payoff diagram below is a slight deviation from the norm. Since the size for the 12.50 strike options is different than the 13.00 and 14.00 call positions I decided to display the payout in terms of dollars. The ultimate goal for this trade, if held to expiration, is that July VIX settlement comes in a low as possible. Anywhere below 13.20 results in a profit which, if the stock market holds up next week, looks likely with VIX closing Friday at 11.95.