Weekend Review – VIX Options and Futures – 3/21-3/24

Despite facing a three day weekend, VIX rebounded with the weakness in the stock market last week.  Of note on the chart below is the price action for the April future.  That contract was at a pretty steep premium to spot VIX and the result was a slight drop in the April contract despite the rise in VIX.  May is at a very large premium as well and this may have been a motivating factor behind the two trades discussed below.

VIX Curve Table

Since it is a long weekend let’s take a look at two VIX trades from Thursday.  Both were actually looking beyond April to May expiration and both are moderately bearish with respect to the outlook for VIX.

First mid-day on Thursday there was a seller of the VIX May 25 Calls for 1.25 who purchased the VIX May 28 Calls at 0.86 for a credit of 0.39.  They are in good shape as long as VIX stays below 25.00.  Over 28.00 and a loss of 2.61 would be the result at expiration.

VIX PO 1

The more bearish of the two trades occurred around lunchtime as well with the VIX May 22 Calls being sold for 1.70 and the VIX May 30 Calls purchased at 0.69 for a net credit of 1.01.  I say this is the more bearish of the two as the trade works out as long as VIX is under 22.00 at May expiration with a profit equal to the credit.  A real VIX spike to the 30’s would result in a loss of 6.99.

VIX PO 2