The tug of war was on and it appears the VIX futures won last week as VIX rose about 20% and the October contract gained only 8%. When we are in steep contango eventually VIX either rises or the futures give in, this time VIX blinked. Remember next week October drops off the board and November becomes the front month. If you are playing the election volatility game we do have Weeklys that expire closer to the vote, but the standard November contract will be the one that gets most of the attention.
The last sizable VIX trade of the week was one that caught my eye. Late Friday, with VIX at 16.12 and the October future at 16.60 there was a split strike short executed in VIX options. It appears this trade is looking for Wednesday’s VIX settlement to be a bit lower that where we finished the week. The specific trade sold 1000 VIX Oct 18 Calls for 0.37 and purchased 1000 VIX Oct 16 Puts for 0.40 and a net cost of 0.03. If held through Wednesday’s AM settlement the payoff looks like the diagram below.