VIX and VXX Paralyzed During OPEX Week

Posted by Scott Murray on March 14, 2013
Posted in: Uncategorized. Tagged: , , , , , .

While we expected a quiet week in the equity markets and a corresponding VIX that trended lower, this has exceeded even our expectations of pure quiet. We’ve seen total high/low spreads of 6-8 S&P points from top to bottom for 4 days essentially. This kind of action represents a VIX of under 8 on an annualized basis. Amazing.

The VIX is barely moving, and the VXX is holding up because the futures in April have a massive premium to spot, nearly 30%. I suspect that a considerable roll is occurring from March to April, and once everyone is in April, those front month futures will start to fall. This is all provided the VIX and the market remain quiet.

The VXX, therefore, is beholden to the April contract at this point, as the fund is holding only 4 days of March of 25 total this cycle. While the daily roll cost is something like this:

14.70-12.70 = 2 / 12.7 = 15.7% / 25 (days in the cycle this month) = .63% per day or 13 cents

Now, while I really hate to actually write the words forthcoming, it is becoming evident due to the price of the futures and the fund’s current holdings, that  VXX options are almost a buy. Almost being the key word. If you eye the front month futures on Tuesday, and the April contracts fall 5% or so, then you are looking at a potential short-term opportunity to get long volatility.

Here is why. On Wednesday with the VXX you may be essentially holding options on April futures at a price of about $14. If you wanted to go buy the options on the VIX for April at $14, you are going to pay 1.50, or 11%. If you buy the VXX calls you will pay less than 10% at the money and you will get 3 more days of time, as they expire on the Friday after VIX expiration. Lots of IFs in there though.

VIX Futures:

Symbol Contract Month Time Last Change Open High Low
VX H3-CF S&P 500 VOLATILITY March2013 15:47:30 12.53 -0.42 12.85 12.93 12.50
VX J3-CF S&P 500 VOLATILITY April2013 15:47:30 14.53 -0.17 14.60 14.84 14.50
VX K3-CF S&P 500 VOLATILITY May2013 15:46:42 15.69 -0.16 15.75 15.95 15.64

VIX Options:

Options Get Options for: 
View By Expiration: Mar 13 | Apr 13 | May 13 | Jun 13 | Jul 13 | Aug 13
Call Options Expire at close Tuesday, April 16, 2013
Strike Symbol Last Chg Bid Ask Vol Open Int
9.00 VIX130417C00009000 5.62 Down 0.18 5.40 5.70 29 1,403
10.00 VIX130417C00010000 4.70 Down 0.20 4.50 4.70 10 2,726
11.00 VIX130417C00011000 3.70 Down 0.07 3.50 3.60 549 1,993
12.00 VIX130417C00012000 2.70 Down 0.17 2.65 2.70 1,657 4,768
13.00 VIX130417C00013000 2.03 Down 0.17 2.00 2.05 1,449 21,210
14.00 VIX130417C00014000 1.55 Down 0.16 1.50 1.55 1,086 20,143
15.00 VIX130417C00015000 1.20 Down 0.11 1.15 1.25 9,357 40,468
16.00 VIX130417C00016000 1.00 Down 0.07 0.95 1.00 2,437 186,380
17.00 VIX130417C00017000 0.80 Down 0.05 0.75 0.80 7,825 162,023
18.00 VIX130417C00018000 0.65 Down 0.05 0.60 0.70 1,057 252,113
19.00 VIX130417C00019000 0.54 Down 0.06 0.50 0.60 1,774 63,232
20.00 VIX130417C00020000 0.45 Down 0.05 0.45 0.50 2,056 183,598

 

IF that trade materializes next week, we will tweet and post it. Otherwise, we already have long volatility positions by having bought calendars, so we are ready for volatility to sit here, or move higher, or do nothing. We have long vol, short vol, and decaying premium all on right now. See prior posts or performance tab to see the current positions.

Trade/Action:

No new positions. Long VIX calendars and VXX puts.

Closed HRB calendar spread for -.19 loss.

Outlook:

Quiet trade through Tuesday, then with the end of quarter in sight for PM’s, let’s see who locks in and calls it a quarter between now and March 31. Volatility will rise soon, maybe not next week, but soon.

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