VIX rose just over 5% to finish the week at 16.00. This occurred as the S&P 500 lost just under 1%, but put up the third losing week in a row which has some market observers scratching their heads as to just what the heck is going on. The feeling is that VIX should be higher with the stock market working lower.
The curve above still has April and the farther months somewhat elevated relative to the index. It could be the consensus is that we have smooth sailing for the near term, but longer term storm clouds are brewing. As always time will tell.
I came across on trade that is looking to benefit from VIX falling within a range of almost 8 points at June expiration. With a couple of hours to go in the trading week there was a seller of VIX Jun 18 Puts at 2.25 and VIX Jun 18 Calls at 2.90 who also purchased VIX Jun 26 Calls at 1.25 all for a net credit of 3.90. If held to expiration this trade turns a profit if June VIX settlement between 14.10 and 21.90. The risk is if the S&P 500 goes on another bull run and pushes VIX back to the lower teens and below or a big move to the upside. Losses are capped to the upside at 4.10 due to the long position in the VIX 26 Calls. All this appears in the payoff diagram below –