We got an interesting move in the VXST – VIX – VIX3M – VXMT curve last week. The short end moved higher despite a nice bullish move out of stocks. The volatility market has been a bit jumpy like we are bracing for an unforeseen spike. We’ll see if the nervousness is justified.
I’ve been keeping a close eye on TYVIX since the bond market has been discussed pretty frequently in the financial press lately. Until it starts to move I’m going to consider the talk nothing to get excited about. Just for perspective, the long term range for TYVIX is from a 3 to an 11 handle.
Pre three-day holiday weeks usually have more volatility indexes down on the week than appear below. The currency markets were by far the leaders which means this may be the place to explore for trades that require some price movement.
Early Friday, with UVXY at 8.62, a trader came in with a low cost trade gaining positive exposure to any potential ‘volatility event’ next week. They specifically sold the UVXY Jan 19th 8 Puts for 0.09, bought the UVXY Jan 19th 10 Calls for 0.16, and then finished things up by selling the UVXY Jan 19th 12 Calls for 0.09. The net result is a credit of 0.02 and a payoff that looks like the diagram below.
This trade is fine as long as UVXY doesn’t move below 8.00 next week. Of course the goal is a huge move to 12.00 which if held through expiration places the profit at just over 2.00.