The S&P 500 hardly budged on a week over week basis and VIX drifted lower. The March future drifted lower basically in sync with the index, but is still at a health premium relative to the index. I’m attributing that to the pending employment numbers coming out next week. I need to do a study and see what happens with that spread on the weeks that we get the employment report. I wouldn’t be surprised to see the gap narrow post-employment as there is often no pending market moving event until after expiration.

VIX Futures Curve

On the trading front there were two trades that appear to expect VIX and the March contract to drift or stay lower. Early in the day a trader came in and sold 4000 VIX Mar 18 Calls at .76 and bought the same number of VIX Mar 21 Calls at 0.44 for a net credit of 0.32. Late in the day there was a buyer of a put spread who purchased 3000 VIX Mar 14.50 Puts at 0.43 while selling 3000 VIX Mar 13.50 Puts at 0.12 for a net cost of 0.31. The maximum reward for this trade is 0.69 with a maximum loss of 0.31. This shows up in the payoff diagram below –


Note that for the call spread the maximum potential loss is 2.69 if VIX is over 21.00 at expiration or a potential profit of 0.31 versus a loss of 2.69. Of course a lot needs to go wrong for the result to be a maximum loss. The risk for the put spread is only 0.32, but this trade result would occur if VIX is over 14.50, which is where it has been for most of 2015.