It has been a while since I’ve started out saying we had a parallel shift in the VIX curve. That’s what we got last week as the market calmed down a bit and the S&P 500 advanced. The October contract settles on the open this coming Wednesday and went out at about a point premium to spot VIX which has been the norm over the past few years when VIX has been in the mid to low teens.
The short dated curve shifted a little more into contango last week. It is still relatively early in the game to make a decision of what is normal for the short term curve and the excess volatility as of late hasn’t given many examples. My guess when I knew VIX Weeklys were on the horizon was that the short term curve would resemble the two lines below.
Mid-day on Friday, with VIX at 16.00, one of my favorite VIX option spread trades was executed in the pit. The trader sold 14,000 VIX Nov 15 Puts for 0.47, purchased 14,000 VIX Nov 23 Calls at 0.92 and rounded things out by selling 14,000 VIX Nov 28 Calls at 0.57. The net result was a payoff at November expiration that appears like the diagram below and a net credit of 0.12.