Despite closing at an all-time low on Thursday and the S&P 500 gaining over 1% last week, VIX was slightly higher when the dust settled Friday. The same cannot be said for the VIX futures curve where all contracts lost value last week. It should be noted that despite the low level (or because of the low level of VIX), VVIX close just shy of 100 last week.
VIX Weeklys continue to become a bigger part of the VIX story with non-standard expirations continuing to experience volume growth. On Tuesday last week a fairly sizable trade using the November 1st VIX Weekly options came into the pit on the 3rd floor at CBOE.
With VIX around 9.55 and the November 1st VIX Future at 11.70 there was a buyer of 2,780 VIX Nov 1st17 Calls at 0.40 who sold 5,460 VIX Nov 1st 21 Calls for 0.24 each resulting in a net credit of 0.08 per 1 x 2 spread. The payout at expiration and half way to expiration appears on the diagram below.
It’s hard to see, but anywhere below 17.00 at November 1st settlement results in a profit equal to the credit taken in on this trade. Things improve from 17.00 up to 21.00, then work lower until over 25.08 where the trade will result in a low. The purple line shows the payoff with 10 days remaining to expiration based on the price level of the November 1st future. Note that line moves up even before the long strike is reached.