The Week in VIX – 9/28 – 10/2

Despite the S&P 500 rising over 1% last week VIX remained over 20.00 for the 30th straight day although it did drop by over 11%.  This run goes back to the beginning of the heightened levels of volatility that began back on August 21st.  The curve below shows that the curve based on standard monthly VIX futures went from backwardation to kind of crooked (that’s not a technical term).  I say crooked because depending on your definition of backwardation or contango the closing curve on Friday could be considered either.

VIX Curve Table

The short term curve went from backwardation to basically flat which is what I anticipate will be considered normal.  We only have about 10 weeks of short term futures data to work with so I haven’t come to a conclusion on what will be ‘normal’ for VIX Weeklys futures.

VIX ST Curve Table

Finally, a trade example that I found pretty interesting as well as smart from Friday.  Toward the end of the day there was a ratio spread that works as long as VIX is under 35.40 at November settlement.  The specific trade sells 2 VIX Nov 30 Calls at 1.10 each (2.20) and buys 1 VIX Nov 25 Call at 1.80 for a net credit of 0.40.  Both VIX and the November contract were in the 20 to 21 range when the trade was executed so I show where both finished the week last week on the payoff below.