VIX managed to threaten to break below 12 this past Friday as all seems right in the world. Who would have thought all being right in the world would involve Donald Trump as our current president elect? Before the hate mail comes, I’m neutral on this topic, the point I’m trying to make is who would have thought VIX would be so low just a couple of weeks after his upset victory? Last week we experienced the slightest VIX curve move that I can recall. However, when VIX is quiet, that’s when we may need to be keeping a sharp eye out for the next volatility event.
On Friday there was one trader who places a relatively large trade that works if VIX returns to higher levels. With spot VIX at 12.64 and the December 21st VIX futures contract at 14.50 there was a buyer of at least 30,000 VIX Dec 21st 16 Calls for 0.85 who then sold the same number of Dec 21st 22 Calls for 0.30 and a net cost of 0.55. The payoff below is based on holding the trade to expiration. Any spike in VIX and I’ll be looking for a 30,000 lot exiting this trade.