To say that volatility was flat last week is misstating the facts.  Sure, VIX was lower, but wow, look at the rest of the curve.   All contracts were higher with April and May futures leading the way at up over 6%.  For this we will blame France, which I will explain after the VIX Table / Term Structure below.

VIX Table Curve

VSTOXX is basically VIX for the European markets.  Specifically, it is an index that calculates a consistent measure of implied volatility as indicated by options on the EuroStoxx 50 Index.  The diagram below is a term structure using VSTOXX and futures from Friday.  Note the big spread between March and April.  It appears the pending election in France is hanging over the markets it that part of the world.  VIX traders probably want to keep an eye on VXSTOXX pricing as there are lots volatility traders that will trade the VIX – VSTOXX spread and as long as there’s risk hanging over Europe it will probably influence VIX activity as well.


This week’s trade is a common one used with VIX options, a bull call spread.  However, what is unusual about this trade is when it was executed.  Between about 5:00 am and 8:30 am Chicago times there was a buyer of over 20,000 VIX Mar 15 Calls at prices between 0.90 and 1.10 who then sold the same number of VIX Mar 22 Calls at around 0.20 in each lot.  The result was a bull call spread using VIX Mar 15 Calls and Mar 22 Calls at an average net cost of 0.89.  The payoffs on the diagram below show this trade at expiration along with the payoff half way to expiration. 


Note above that the break even for this trade at expiration is 15.89 while it appears a move to 15.00 for the March futures (half way to expiration) would result in the position moving from being a loser to being a winner.  Also, for those who can't wait until the standard market opening time of 8:30 am this is a good demonstration that there's liquidity to get things done during extended trading hours.