VXX (Short-term VIX futures) - Bet on Summer Vol

Discussion in 'Options' started by livevol_ophir, Jun 3, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    VXX (VIX Short-term futures ETN) is trading 28.77.

    <img src="http://2.bp.blogspot.com/_hMry1m7UF10/TAf3gHTEEVI/AAAAAAAACvY/rcxBLMsEa5U/s1600/vxx_summary.gif">

    The index has traded nearly 29,000 options on total daily average option volume of just 1,101. All but 4,216 contracts have been calls. The largest trades are the July 25,30,32,36 and 39 calls. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/06/vxx.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/06/vxx.html">in the article</a>) illustrates that the calls on all the lines are mostly opening (compare OI to trade size).

    From what I can tell these are the trades:

    Buy Jul 30 calls
    Buy Jul 32 calls/Sell Jul 39 calls (call spread)
    Sell Jul 36 calls
    I can't really tell what's going on with the Jul 25 calls

    If you put those together (sans Jul 25), you get two call spread purchases (long the VIX short-term) into the summer doldrums. i.e. a bet that it will <i>not</i> be "doldrummy." I know that's not a word, but it should be...

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/vxx.html">in the article</a>) illustrates a relatively normal skew for a vol index. We can see Jun upside (or a stock market downturn) is bid relative to the next two months. July and Sep are very similar, which is in fact weird.

    The VIX itself has the same pattern though. Jun is bid relative to the back two months with Jul > Sep. I've included the VIX skew as well (<a href="http://livevol.blogspot.com/2010/06/vxx.html">in the article</a>).

    Finally, the Charts Tab (6 months, index only) is below (in the article).

    This is a pretty cool chart actually. You can see the short futures dip then jump from the European woes. Now they are drifting down again.

    I have always felt that 45 VIX (where we peaked recently) is sort of an unsustainable level. It means we're on the "verge" of being on the "verge" if that makes sense.

    From there the market either tanks more and VIX pops higher, or it does what has happened recently. No explosive news, so a drift down (by drift I mean 33% re-tracement in 4 weeks).

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. Pinozi


    I hope those trades work - I for one am not a fan of doldrummy markets
  3. .....rum and rummy markets, YES! :cool:
  4. livevol_ophir

    livevol_ophir ET Sponsor

  5. 1) Are the front-most months always "like that" because that is where nearly all of the volume is traded with not as much in the deferreds?
    2) Is VXX "arb-able" against the VIX futures? :confused:
  6. livevol_ophir

    livevol_ophir ET Sponsor

    1) Not necessarily.

    2) VIX futures arbing is possible, but it's a pretty involved game, so be careful!