Today when I was searching for trades to discuss on Volatility 411 I came across a pretty interesting one that was structured a little different than the normal risk reversal.  With VIX around 10.18 and the November futures at 11.65 someone came in and sold 1500 VIX Nov 12 Puts for 1.37 and purchased 3000 VIX Nov 15 Calls for 0.59 and a net credit of 0.19.  The payoff below assumes the trade is held to expiration, but if there is some sort of volatility event between now and then I bet there will be some monetization (think profit taking) of this spread.

VIX PO Wednesday

What I like about this trade is two-fold.  First, I like that they took in a credit when initiating the trade.  This means if VIX is over 12.00 at November settlement all options expire out of the money, but the trade results in a profit equal to the credit.  Also, I like the 2 for 1 relationship they have with the long calls.  A volatility event that pushes VIX and the November futures contracts into the upper teens or low 20’s would result in pretty nice payout.  There are always innovative ways that traders use VIX options to get cheap, long volatility exposure, and today I stumbled across another one.