Market Overview

November VIX Futures Expire this Week

The week of CBOE Volatility Index (VIX : CBOE) expiration is always a period ripe with opportunity. Because of the natural term structure of VIX options, Call premiums stay elevated much later into their cycle than traditional equity options. This presents many opportunities to execute a view on vol with very little holding period time.

With historical vol hovering near the 19 level, the spot (23.36) and Nov. futures (24.25) are carrying large premiums especially with 3 days to trade. If the S&P can remain stable or move up small Monday and Tuesday of this week we may be in for another sharp push lower into expiration morning. Although I do believe that 20.50 is more than likely an intermediate-term floor, there are still trades to be had. I would recommend selling the 26/27.50 Nov. Call Stupid (short each strike, as opposed to a Call Spread, where one option is long and the other short) and buying the Nov 22.50 put. You will receive a net credit for the transaction of roughly 0.30 and be in position to profit from any move lower in Vol immediately.

This position is very much directional and exposed to losses if a sharp spike occurs. I believe the odds of that scenario to be low, as do many VIX pit traders as evidenced in how they positioned against the 120,000 contract butterfly spread that went off Friday afternoon.

Posted-In: Options Pre-Market Outlook Trading Ideas

 

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