Weekend Review of VIX Futures and Options – 1/28/2018

VIX was lower last week, but that’s the only thing that lost value on the table / term structure chart below.  All the futures moved higher despite VIX moving lower, but also shaking off a very bullish week for the S&P 500.  We live in unusual times and there is much being written about the VIX behavior which seems to be ignoring record S&P 500 moves.  Usually this disconnect rights itself with either stock prices dropping or VIX finally giving into the reality of a higher S&P 500.

 Weekend Review of VIX Futures and Options – 1/28/2018 at vixtrade.com

Before moving on to a trade I’d like to note that on Friday there was a seller of just over 25,000 VIX Feb 7th 21 Calls who was able to get the whole trade crossed with two counterparties in VIX pit at Cboe.  I don’t know if they are short the calls versus futures, speculating, or what.  I just wanted to note how a large trade is being done in the non-standard expirations.

For a trading example I’m sticking with the Weeklys, but reporting on a smaller trade.  First thing Friday, with VIX around 11.60, there was a trade buying the VIX Feb 7th 13 Calls for 0.69 and selling the VIX Feb 7th 21 Calls for 0.10 resulting in a net cost of 0.59.  The hope behind this trade is for a move to the mid-teens between Friday and a week from Wednesday.  The only big number I came across was January employment next Friday, but as skittish as the stock market has been, it may not take too much news to push VIX to levels this trade is hoping for.

 Weekend Review of VIX Futures and Options – 1/28/2018 at vixtrade.com

 Weekend Review of VIX Futures and Options – 1/28/2018 at vixtrade.com >

Weekend Review of VIX Futures and Options – 1/21/2018

Although still at a historically low level, VIX showed some signs of life this past week trading above 12.00 for the first time since December 1st last year.  Standard January futures and options went off the board Wednesday morning settling well above 12.00.  The futures moved up a bit, but not nearly to the extent of spot VIX.  This may be taken as the market expecting VIX to return to historically low levels.  Of course when this has been the case for so long, why wouldn’t the traders not push the futures higher.

 Weekend Review of VIX Futures and Options – 1/21/2018 at vixtrade.com

The last big trade in the VIX pit Friday occurred with just seconds left in the day.  Someone came in and purchased 2000 VIX Feb 13 Calls for 0.94 and sold 2000 VIX Feb 18 Calls for 0.42.  The net result was a cost of 0.52 and a decent payoff if we get follow through to the upside on the recent VIX strength.  They may have even been hoping for volatility to rise early next week based on the government shutdown not being resolved by Monday.

 Weekend Review of VIX Futures and Options – 1/21/2018 at vixtrade.com

 Weekend Review of VIX Futures and Options – 1/21/2018 at vixtrade.com >

Weekend Review of Volatility Indexes and ETPs – 1/21/2018

All four volatility indexes based on S&P 500 Index option pricing moved higher last week.  I know all the talk was about the government shutdown being responsible for the rise.  However, if that were totally the case I don’t think we would be seeing VIX3M and VXMT moving up as much as they did.  I believe there’s more going on here, but I also spend most Friday evenings watching Ancient Aliens.

 Weekend Review of Volatility Indexes and ETPs – 1/21/2018 at vixtrade.com

In the ETP space the long funds benefitted from the bump in VIX futures.  Also worth paying attention to is the gain in VVIX, SKEW, and TYVIX.  Risk is coming back into the markets in a broad way.

 Weekend Review of Volatility Indexes and ETPs – 1/21/2018 at vixtrade.com

The majority of volatility indexes we quote at Cboe Global Markets were higher last week.  On the downside GS and IBM volatility dropped, based on earnings releases and Gold, Oil, and Sliver volatility were all lower.

 Weekend Review of Volatility Indexes and ETPs – 1/21/2018 at vixtrade.com

On Thursday, with moderate fears of a government shutdown pushing volatility markets higher, one trader came in with an interesting spread.  They sold 150 VXX Jan 19th 27 Calls for 0.40 and then purchased 200 VXX Jan 19th 28.5 Calls for 0.12 each.  Basically they purchased four calls for every three sold.  The net result was a credit of $3600 (excluding commissions).  This trade was executed with VXX near 27.00.  A payoff diagram based on Friday’s close appears below.

 Weekend Review of Volatility Indexes and ETPs – 1/21/2018 at vixtrade.com

This trade was a little dicey early on Friday VXX traded as high at 27.40 which would have resulted in a loss of $2400 if that’s where VXX had closed.  Although the government did shut down, VXX finished Friday a bit lower on the day and if this trade was held through the close the result was a profit equal to the credit of $3600 taken in late Thursday.

 Weekend Review of Volatility Indexes and ETPs – 1/21/2018 at vixtrade.com >

Weekend Review of VIX Options and Futures – 1/14/2018

VIX gained and the futures curve dropped a bit last week. This is not totally out of the norm, but before a holiday weekend is something I cannot recall occurring in my years of watching VIX price action.

 Weekend Review of VIX Options and Futures – 1/14/2018 at vixtrade.com

Wednesday last week was the second busiest day on record in the VIX option arena.  A good portion of this can be attributed to one very large position being rolled from January to February VIX contracts.  It turns out this has been an ongoing saga starting back in the summer.  Here’s the full story of this short 1 VIX 12 Put, long 1 VIX 15 Call, short 2 VIX 25 Calls spread trade.

The first part of the story begins on Friday July 21st when a trader initiated a spread that sold 1 VIX Oct 12 Put for 0.75, purchased 1 VIX Oct 15 Call for 1.45, and the sold 2 VIX Oct 25 Calls for 0.45 each for a net credit of 0.20.  This spread was traded a little over 260,000 times (260,000 of the 12 Puts and 15 Calls and 520,000 of the 25 Calls).  The payout if held to October expiration appears below.

 Weekend Review of VIX Options and Futures – 1/14/2018 at vixtrade.com

On September 25th the trader rolled this position from October to December.  They bought the VIX Oct 12 Puts for 0.87, sold the VIX Oct 15 Calls at 0.63, and then covered the VIX Oct 25 Calls for 0.15 each.  Exiting the October position cost 0.54 per spread.  A December position was initiated in the same contracts with 1 VIX Dec 12 Put being sold for 0.80, 1 VIX Dec 15 Call purchased for 1.80, and 2 VIX Dec 25 Calls sold for 0.67 each for a net credit of 0.34.  Combining the October and December legs resulted in a cost of 0.20, which is equal to the credit taken in back in July so at this point the running trade was done for no cost.  The payoff below shows how this trade would work at different levels upon December expiration.

 Weekend Review of VIX Options and Futures – 1/14/2018 at vixtrade.com

Note the second payoff diagram is very similar to the first, but shifted down a little bit.

A third rolling transaction occurred on December 1st last year with the trade being rolled from December to January.  The VIX Dec 12 Puts were purchased for 0.90 and two Dec 25 Calls purchased for 0.20 each while the VIX Dec 15 Calls were sold for 0.90.  This leg results in a cost of 0.40 to exit.  The VIX Jan 12 Puts were sold for 0.70, VIX Jan 15 Calls purchased for 1.50 and then finally two VIX Jan 25 Calls sold for 0.50 each.  The January leg generated a credit of 0.20 so the third rolling transaction cost 0.20 which is at this time was the running cost for this trade.  The payoff diagram below takes into account the running cost of rolling this trade since inception in July.

 Weekend Review of VIX Options and Futures – 1/14/2018 at vixtrade.com

This payoff diagram is very similar to the first two, but has shifted down a little bit with a loss of 0.20 at expiration.

Now we get to this week.  This past Wednesday this trade was rolled out to February.  The VIX Jan 12 Puts were purchased for 1.53, the VIX Jan 15 Call sold for 0.12 and finally the two VIX Jan 25 calls purchased for 0.04 with a net cost of 1.49 to exit the January part of the trade.  The rolling trade moved exposure to February contracts which expire on Valentine’s Day (early reminder guys).  The VIX Feb 12 Puts were sold for 1.38, the VIX Feb 15 Calls were purchased for 0.73 and then finally two VIX Feb 25 Calls were sold for 0.27 each.  This part of the trade generated a credit of 1.19 resulting in a cost of 0.30 per spread for this roll.  This means the net running cost for this trade is now 0.50 and a payout at February expiration that looks like the diagram below.

 Weekend Review of VIX Options and Futures – 1/14/2018 at vixtrade.com

This trade is looking for some sort of volatility event with a potential trade occurring to take profits if we get the long overdue spike.  As always if something happens worth talking about we will report back in this space.

 Weekend Review of VIX Options and Futures – 1/14/2018 at vixtrade.com >

Weekend Review of Volatility Indexes and ETPs – 1/14/2018

We got an interesting move in the VXST – VIX – VIX3M – VXMT curve last week.  The short end moved higher despite a nice bullish move out of stocks.  The volatility market has been a bit jumpy like we are bracing for an unforeseen spike.  We’ll see if the nervousness is justified.

 Weekend Review of Volatility Indexes and ETPs – 1/14/2018 at vixtrade.com

I’ve been keeping a close eye on TYVIX since the bond market has been discussed pretty frequently in the financial press lately.  Until it starts to move I’m going to consider the talk nothing to get excited about.  Just for perspective, the long term range for TYVIX is from a 3 to an 11 handle.

 Weekend Review of Volatility Indexes and ETPs – 1/14/2018 at vixtrade.com

Pre three-day holiday weeks usually have more volatility indexes down on the week than appear below.  The currency markets were by far the leaders which means this may be the place to explore for trades that require some price movement.

 Weekend Review of Volatility Indexes and ETPs – 1/14/2018 at vixtrade.com

Early Friday, with UVXY at 8.62, a trader came in with a low cost trade gaining positive exposure to any potential ‘volatility event’ next week.  They specifically sold the UVXY Jan 19th 8 Puts for 0.09, bought the UVXY Jan 19th 10 Calls for 0.16, and then finished things up by selling the UVXY Jan 19th 12 Calls for 0.09.  The net result is a credit of 0.02 and a payoff that looks like the diagram below.

 Weekend Review of Volatility Indexes and ETPs – 1/14/2018 at vixtrade.com

This trade is fine as long as UVXY doesn’t move below 8.00 next week.  Of course the goal is a huge move to 12.00 which if held through expiration places the profit at just over 2.00.

 Weekend Review of Volatility Indexes and ETPs – 1/14/2018 at vixtrade.com >