I’m depending on my aging mental capacity in lieu of spending the time to go through the last four years of VIX recap blogs for the following statement. I have no recollection of a shift in the VIX term structure curve that replicates what shows up below. VIX lost value on the week, while all the futures contracts moved higher. Last Friday, spot VIX ran up quickly at the end of the day, but the futures remained at lower levels. To get back to a more ‘normal’ environment, we needed either a drop in VIX or a rise in the futures pricing. We actually got both with the front month September contract gaining almost 23% while VIX dropped by 7%.
The next chart and table is relatively new to this space and is a depiction of VIX and the next five weekly VIX futures contracts. For an apples to apples comparison the contracts are consistently rolled. So Week 1 on 8/21 was the August 26th contract while Week 1 for 8/28 is the September 4th contract. Do note that a week ago the near term future was at a discount of 3.255 while this past Friday the near term future is basically in line with spot VIX (for the quants it is actually at a slight premium).
As the week came to an end, which could not have come too soon for most traders, there was a fairly aggressive bear call spread traded in the VIX pit. There was a seller of the VIX Sep 16 Calls at 9.00 who also purchased the VIX Sep 20 Calls for 5.94 for net credit of 3.06. The payout at September expiration along with where VIX and the September future finished the week shows up below.
At expiration the trade makes money below 19.06 and if we get a dip to 16.00 or below then both call options expire with no value and the trader gets to keep the credit of 3.06 that was taken in when the trade was initiated.