VIX was up slightly last week despite the markets having a relatively muted response to the first rate hike from the FOMC in just under a year. The December VIX futures which expire this coming Wednesday actually dropped a bit as they had been slightly elevated relative to spot VIX. One would never think the markets digested a rate hike last week by looking at the volatility market price action below.
Wednesday last week there was a trader who decided volatility is going to remain at low levels between now and the week between Christmas and New Year’s Day. With VIX at 13.10 there was a seller of about 3,000 VIX Dec 28th 14 Calls for prices between 1.00 and 1.05. This trade is interesting as it uses VIX Weekly Options, but also targets a week that is usually one of the slowest each year in the markets.
Basically, if December 28th AM VIX settlement is below 14.00 then the seller of these calls profits by the premium taken in when they were sold. Between 14 and 15 there will be a partial profit and over 15.00 this call seller will start to be subjected to losses.