If a tree falls in the woods and no one is there to hear it did it make a sound? More appropriately for this space, if market fear increases during non-US market hours was there any increase in fear? Before this election this could be a philosophical debate among those of use that follow market volatility. Now we know that the answer is yes. I’ve already touched on the overnight market action in November VIX futures and the S&P 500 futures contracts so I won’t rehash that here. If you want a final look at the volatility spike that occurred while some were sleeping, click on this link About Last Night.
On a week over week basis the sound the volatility markets made was a crush. We call a quick drop in volatility a volatility crush and I think VIX losing 37% qualifies as a crush. The futures followed suit and we are comfortably in a state of contango.
On Wednesday morning, there was still a bit of concern with respect to the market and the election result, but one trader had a cool head and put on a short volatility position. With VIX at 15.60 and the November futures at 16.20 someone purchased 500 of the VIX Nov 17 puts for 1.90.
The break even on the payoff diagram above is 15.10. Note VIX finished the week at 14.17 and the November contract settled at 14.925. So far so good on this trade, we’ll see the final outcome on the open Wednesday when November VIX options and futures settle.