Weekly Review VIX Options and Futures 2/16 – 2/19

VIX managed to stay in the 20’s despite the most resilient performance from the S&P 500 in 2016.  We did finally give up on the last bastion of backwardation (month 1 versus month 2) as March became the front month with February going off the board Wednesday on the open.

VIX LT Curve

The generic short dated VIX curve constructed using Weeklys futures flattened and then some last week based on the drop in VIX and a fairly light economic calendar over the next couple of weeks.  We can probably throw the end of earnings season in there as another reason volatility expectations have moved lower.

VIX ST Curve

It appears at least on trader expects VIX to remain below 23.00 for the next few weeks.  The last big VIX trade of the day on Friday was a seller of the VIX Mar 23 Puts at 2.56 who purchased the VIX Mar 24 Puts for 3.27 and a net cost of 0.71.  Usually bearish vertical spreads show up using call options, but in the world of cash settled index options it is not unheard of for a trade like this to show up on tehp ut side of the screen.  As long as standard March VIX settlement comes in below 23.00 this trade will result in a profit of 0.29, a renewal of higher volatility and settlement over 24.00 results in a loss equal to the cost of 0.71.

VIX PO Fixed