Last week VIX experienced the second biggest week over week percentage drop for 2015. The largest move lower occurred the week before the three day Martin Luther King holiday weekend so that one may need to be given an asterisk.   However, VIX going back to the tweens last week should not be ignored as an indication of a new round of equity market complacency sinks in. Someone needs to tell that to the April VIX futures which remain at a pretty high premium (over 3 points) relative to the spot index despite Janet Yellen making the word safe for stocks again last week.

VIX Futures

I paid close attention to the trading activity in the VIX option market on Wednesday and came across a 'before' and an 'after' trade worth mentioning. What I mean by this is a big VIX trade from before the FOMC announcement and then after the announcement. First the before.

A couple of hours into the trading day and before the FOMC announcement there was a seller of both VIX Apr 17 Puts at 1.31 and VIX Apr 17 Calls at 1.81 who simultaneously purchased the same number (20,000 for the curious readers) of VIX Apr 25 Calls for 0.54 and a net credit of 2.58. The net result is a profit at April expiration as long as settlement falls between 14.42 and 19.58. Two out of the three settlements have fallen in this range in 2015 with January being the outlier at 20.97.

VIX PO Short Apr 17 Straddle Long Apr 25 Call

After the announcement a trader came in and purchased 30,000 VIX Apr 16 Calls at 1.61 and 30,000 VIX Apr 16 Puts at 1.04 for a net cost of 2.65 or $7.95 million after applying the $100 multiplier and size of the trade. This trade is basically the opposite outlook of the ‘before’ trade above. If held to expiration, April VIX settlement would need to be above 18.65 or below 13.35 for this trade to turn a profit.

VIX PO Long Apr 16 Straddle