After starting the week off on a bullish note, the S&P 500 finished out down just over a half a percent for the week. VIX was up just a bit more than 2%, most likely being held back by weakness that was associated with the S&P 500 moving higher on Monday and Tuesday last week.

The spread between the May VIX future and spot index is pretty narrow finishing Friday at less than a point. Not only did the spread between the May futures and spot VIX index narrow, but a portion of the curve actually dropped. June through October futures were lower despite the rise in VIX. The result is a slight flattening of what has been a pretty steep curve over the past few months.

VIX Curve Table

With May expiration rapidly approaching, most traders seem to be looking beyond May to June. I saw someone Friday morning who seems to be looking out to July for a volatility spike. With VIX at 14.23 and the July VIX futures at around 18.60 someone came in and purchased 6700 VIX Jul 20th 21 Calls for 1.92 and went several strikes higher and sold the VIX Jul 20th 35 Calls for 0.42 and a net cost of 1.50. The payoff diagram below highlights all the important price levels.


The maximum profit on this trade comes to 12.50 per contract with July VIX settlement at 35.00 or higher. The break-even price is 22.50 and finally anywhere from 21.00 or lower the cost of the spread, 1.50, is equal to the maximum loss.