Weekly Review – VIX Futures and Options – 1/25 – 1/29

The VIX term structure is approaching contango which many VIX watchers will consider a green light for the equity markets, but the February contract stubbornly remains elevated relative to the March contract.  Although on Friday this premium was down to 0.30.  My feeling is February may stay up a bit until we get the employment number behind us this coming Friday.  At that point I guess VIX will be just like the Fed (data dependent).

VIX LT Curve

The shorter term curve flattened out as VIX tested the teens as the equity market rallied on Friday.  We are now six months into having short dated or VIX Weeklys futures available for trading and I have a long list of testing I want to do with the data that is now available to play around with.  Of course anything of interest will be promptly reported in this space.

VIX ST Curve

As the equity markets were beginning an upward trajectory on Friday a volatility trader came in to take advantage of VIX in the 20’s in the form of selling an out of the money call spread.  With VIX at 21.40 (1.20 higher than the day’s closing price) a trader sold just under 25,000 of the VIX Feb 26 Calls for 1.09 and purchased the VIX Feb 32.50 Calls for 0.38 resulting in a net credit of 0.71.  As long as VIX remains under 26.00 between now and February VIX settlement on the open February 17th this trader will stay out of the danger zone where this trade starts to give up some of the premium received when the trade was initiated.

VIX PO Weekend