My only comment is that I hope you don't assume that the underlying of those puts is the VIX index. It's not. For all practical purposes it is the October VIX futures contract, which is currently trading about 6 full points below the VIX index - at 26.28. So the VIX index is trading at a huge premium, and could easily drop 6 points without the futures dropping much at all.
Since I posted the above comment, the VIX index is up over a full point, while the VIX futures (which is the underlying of those VIX options) is up just .17. See what I mean?
Thanks for the replies. If I wanted to bet that the VIX will drop to 25 in one month, I thought the best way to play it is: Long the 35 puts and short the 25 puts (or even higher). Is there a better way to play it?
Does VIX really matter?...you got people saying, watch out taking ES shorts if VIX hits a certain high...your thoughts?...does VIX really matter or is it simply a responder to what people are doing in the cash SPX?meaning...the SPX drives and the VIX follows...kinda like Gold follows equities and never leads
The play you described does NOT play the VIX, as I mentioned before. It plays the VIX futures, which is a different animal entirely. Except at expiration, there is NOTHING that ties the vix index and the vix futures together. At today's close, those futures were at 26.60. So if you buy that put spread thinking you are betting on a drop in the VIX from its current level of 36.22, you will have an unpleasant surprise. The VIX futures traders are willing to short it at 26.6, so it's not going to be easy for you to short it at 36. You could look at buying front-month premium and selling back-month premium at a ratio that makes you gamma neutral, which would make you short vega, which is what you want (you would want to be delta neutral as well of course). But that's not perfect either, because back month option premium is trading at a lower IV than front month premium. So even though the VIX looks like a tempting short sale at 36, I don't know of any way to actually sell it there.
If you just take a look at expiration, why don't buy a cheap 36 call (with future around 26) and sell VIX spot at 36.22? A synthetic put hedged on spot, not on future ( sure you got a risk before expiration that future won't up and VIX jumps, but if one got cash enough to hold position 'till expiration ). It's not a pure option position but...
What VIX spot are you going to sell at 36.22? Unfortunately there is no such thing. That's the whole point I'm trying to make. That 36.22 VIX is an imaginary number that exists nowhere in reality, except perhaps if you want to sell straddles. That's the only VIX "spot" I can think of.
I was thinking about a replication of VIX, that could be built on the same framework it's done. 'sure it could be little bit more complex. I don't trade VIX, so it was a question, not an answer.