The S&P 500 dropped a bit and VIX rose some last week. For all the fear and uncertainty that has been in the air around the beginning of the Trump era in Washington DC, the markets have remained calm and not done a whole lot in the past few weeks.
We did get January VIX options settlement last week with VRO coming in at 12.42. This is something I’m watching closely as I got a twitter question awhile back with respect to streaks where standard VIX settlement had been under 16.00. This is the 7th straight VIX settlement below 16.00. The record streak of standard settlements (excluding Weeklys) is 11 that stretched from August 2006 through June 2007.
Finally, how about a trade from last week? On Tuesday, there was a small deviation on a trade that shows up an awful lot in the VIX Pit. Spot VIX was around 12.34 and the February VIX future price was over 2 points higher at 14.45. A trader sold 12,050 VIX Feb 12.50 Puts for 0.36 and 12,050 VIX Feb 13.00 Puts for 0.55. They then purchased 24,100 (twice as many) VIX Feb 17 Calls at 0.94 and finally sold 24,100 VIX Feb 22 Calls for 0.46. The net result, for this 1 x 1 x 2 x 2 spread is a cost of 0.025 a spread plus commissions. The payout on VIX Feb 15th AM settlement appears below.
This trade is all about VIX and the Feb contract spiking over 16.00 where the spread profits up to the short 22.00 strike price. With settlement comes over 13.00 no extra losses are incurred, between 13.00 and 12.50 only the short 13.00 puts are in the money and below 12.50 this spread has both short puts in the money.