I’ve been around long enough to remember when the time in the markets between Memorial Day and Labor Day were quiet enough for traders to spend several afternoons at Wrigley field without feeling they were missing anything. This past week no one could have gotten away with playing hooky.
As the stock market came under pressure, VIX climbed to the highest levels we have seen since February. Everyone is focused on Brexit as the ‘reason’ for the markets to be doing what they are doing. I’m going to use that excuse for a couple of things in this blog as well. First, note the curve is basically in contango despite VIX being at relatively high levels. I believe, if it weren’t for the big vote next week, that either VIX would be lower or if VIX were this close to 20.00 the July contract (which doesn’t expire until July 20th) would be at a discount to spot VIX.
I noted in a tweet that for the first time in four years more VIX put options than call options traded for two consecutive days (Thursday and Friday). My initial impression was that this must be a sign traders are prepping for a volatility crush after the Brexit vote or at least lower VIX over the next few weeks. Well, I may have jumped the gun without all the information. The picture below shows a breakdown of today’s VIX option trading.
Note what I highlighted above, a good portion of the VIX put volume today was on the bid side. This usually indicates public orders being more sell oriented than buy oriented. If puts were being sold, it would be with the expectation of higher volatility. Also, VVIX has been very high of late, closing Friday at 115.72 which is on the historically high end and may have steered volatility bulls toward selling puts instead of buying calls.
Finally, a little more on Brexit. I took a snapshot from the LiveVol platform at the end of the day and cut out the skew chart for all the available VIX option series. Note the highest line below represents the June 29th VIX options which is the first expiration post-Brexit.
At this time, it appears the Brexit versus Bremain vote is going to come down to the wire. We know the vote is going to happen we just don’t know the probable outcome and don’t know how the market will react. With that much uncertainty we have high VIX, high VIX futures pricing, and high skew for the June 29th VIX options.