VIX fell to multi-year lows last week which reflects quantitatively a lack of concern in the equity markets. What I found interesting with respect to the numbers below was how the February future lost more than spot VIX last week. This sort of price behavior is usually associated with expiration rapidly approaching or little in the way of economic events on the horizon. That’s not the case here as February contracts expire in a couple of weeks and the coming week brings us an FOMC meeting as well as the January employment report.
Mid-day Friday, with VIX at 10.64 and the March contract at 14.20 someone came in with a common trade hoping for higher volatility over the next few weeks. They sold the VIX Mar 12 Puts for 0.37, purchased the VIX Mar 16 Calls at 1.22 and finished the trade by selling the VIX Mar 18 Calls for 0.90. They did this a total of 37,500 times with the result being a net credit of 0.05 a spread. The payout at March expiration appears below. As always, there is a good chance any spike in volatility would result in some profit taking before expiration.