VIX gained over 14% last week as volatility rose in reaction to a 1% drop in the S&P 500.  It is hard to quantify, but I’m thinking that a part of the rise is VIX can be attributed to the vote going on in Italy this weekend.  Note that the curve shift was not exactly uniform and the futures lagged the move in the index.  Barring a volatility spike in reaction to this weekend or some other unforeseen market moving event, I would not be surprised to see the VIX curve return to a more natural state of contango.

vix-curve-table

Despite a world where is seems like the next volatility event is lurking around the corner, there was on trader late Friday looking for VIX and the December VIX futures to remain in a range until December 21st settlement.  With spot VIX at 14.07 and Dec VIX at 15.00 there was a seller of the VIX Dec 14.00 Puts for 0.77 who also sold the VIX Dec 14.50 Calls at 1.55 taking in a credit of 2.32 and a payoff at December expiration depicted below.

vix-po

Settlement between 14.00 and 14.50 is the best case scenario for this trade.  However, there is also a pretty wide range where this trade makes money at expiration.  As long as VIX finishes above 11.68 or below 16.82 this trade makes money.  Of course there's no limit to what can happen if a December surprise takes the equity markets down and pushes VIX to higher levels.