VIX Puts Still in Denial

Posted by Scott Murray on March 15, 2013
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With the VIX at 11.30, a lot of put holders/buyers at 12 and 13 can make a lot of money fast. If the VIX settles right here, these puts will more than double. These settle in cash on Wednesday, when the opening hour of trade determines the settlement price for March. This can be gamed, by purchasing (or selling) OTM SPX options to drive up (or down) the VIX percentage at the open on Wednesday, but that is a topic for future consideration.

Someone is on it, buying a boatload of these puts yesterday. You will notice that put spreads don’t pay anything, so these folks are long. Who can blame them? Maybe they will ensure the VIX opens low on Wednesday, wink, wink:

Put Options Expire at close Tuesday, March 19, 2013
Strike Symbol Last Chg Bid Ask Vol Open Int
9.00 VIX130320P00009000 0.05 0.00 N/A 0.05 50 50
10.00 VIX130320P00010000 0.02 0.00 N/A 0.05 5 29
11.00 VIX130320P00011000 0.05 Up 0.03 N/A 0.05 56 1,948
12.00 VIX130320P00012000 0.10 0.00 0.15 0.20 40,156 116,836
13.00 VIX130320P00013000 0.70 Up 0.20 0.70 0.75 54,466 155,814
14.00 VIX130320P00014000 1.60 Up 0.35 1.55 1.65 31,021 137,378
15.00 VIX130320P00015000 2.55 Up 0.42 2.45 2.60 17,032 210,199
16.00 VIX130320P00016000 3.40 Up 0.30 3.40 3.50 129 187,206
17.00 VIX130320P00017000 4.40 Up 0.80 4.40 4.60 2,492 82,256
18.00 VIX130320P00018000 5.20 Up 0.40 5.40 5.60 208 79,498

Trade/Action:

We tweeted out two trades today, a long VXX calendar where we sold March $20 and bought April $20. This will work perfectly if vol remains low next week and these expire worthless  and then we will be long the April $20’s for only .85. Then if we get a spike in vol before April 19th, we may get an asymmetrical return, which is what we always want, risk X to return 4-5X.

We also bought Mar4 VXX $19.50 puts for .16. This is a smaller position.

Trades:

Long Mar4/Apr calendar VXX spread for .85 debit. Short Mar4 $20 VXX call, long Apr $20 VXX call.

Long Mar4 VXX $19.50 put for .16.

Update: added at .13.

Outlook:

Next week sets up historically as bullish with low volatility early in the opex cycle. As March drags on, there is the potential for skittish managers to book their quarter, so we may see more volatility soon.