Weekend Review of VIX Futures and Options – 6/25/2017

VIX was a bit lower to end the week and the curve moved down as well.   We retired June last week and now July is the front month and is at a premium of just over 1.80 to finish the week.

VIX Table Curve 06232017

Before getting into a trade I would like to point out some heavy activity that abounded last week in the VIX Weekly options expiring this coming week.  There was a pretty big buyer of the VIX Jun 28th 19, 20, and 21 Calls paying 0.10 for the 19’s and 0.05 for both the 20’s and 21’s.  A majority of these trades occurred early this past week.  The figure below shows the open interest for each of these far out of the money VIX call options that only have two trading days remaining until expiration.  Adding the open interest for all three strikes together results in over 80,000 open positions.  That’s pretty good for many standard expiration strike and remarkable for the VIX Weeklys.

VIX June 28 Table OI

On Wednesday, there were two familiar, similar, and interesting trades that hit the VIX pit.  They were familiar in structure as they involved selling a put to help pay for a call spread.  They both are looking for some sort of volatility spike between now and late July, more likely in late July than in the near future.  What makes them interesting is they were executed in a weekly or non-standard series of VIX options.  Trade one involved selling the VIX Jul 26th 10.50 Puts for 0.21, buying the VIX Jul 26th 17.00 Calls for 0.54 and selling the VIX Jul 26th 30.00 Calls for 0.15 which results in a net cost of 0.18.  The other trade sold the VIX Jul 26th 11.00 Puts for 0.45, purchased the VIX Jul 26th 15 Calls at 0.68, and selling the VIX Jul 26th 30 Calls for 0.09 which results in a cost of 0.14.  The payoff diagram below shows the outcome for both trades if held through expiration.

VIX PO 06232017

Note both shapes are very similar with a low dollar cost up front, potential downside with VIX hovering around 2017 lows, and some great upside potential.  The thing that gets me is the timing, why the July 26th series instead of the standard July expiration the week before these options go off the board?  If may be worth checking the economic and earnings calendar to see if something specific is scheduled between those two expiration dates.

The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

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