VIX managed to (briefly) put in a post Great Financial Crisis low hitting 9.90 on Monday and sneaking in a 9.99 low on Friday as well. Full disclosure, I didn’t even see the 9.99 print on Friday, but then again, we are getting conditioned against getting too excited when VIX dips below 10. Worth noting below is the bigger drop in the May future when compared to spot VIX. Typically, we see this closer to expiration, but when there’s very little on the horizon that the markets are worried about the curve will flatten and that’s the environment we are experiencing.
Two weeks ago, the world was fixated on what was going to happen in the French election. As a reminder, the second round is this weekend. However, the markets aren’t terribly concerned about the potential outcome on Sunday and the VSTOXX curve is indicating the expectation for a quick drop in VSTOXX on Monday as the May future is at a 2 point discount to the spot index.
This weekend’s highlighted trade was executed over the course of the day on Friday in several mid-sized chunks. There was a buyer of the VIX Jun 21st 12.50 Calls who sold the same number of VIX Jun 21st 19.00 Calls. The individual option prices varied, but the majority of these spreads were executed at a cost of 0.87. The trader gets some long volatility exposure between now and the longest day of the year. The payoff diagram below shows the outcome at expiration and with 21 days to expiration or the midpoint on the calendar between Friday and expiration.