VXZ - Options Action Bets on Lower Vol in July

Discussion in 'Options' started by livevol_ophir, Jun 8, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    VXZ (VIX Mid-Term Futures) is trading 92.19.

    The company has traded over 10,000 options on total daily average option volume of just 270. All but 1 (one) contract has been puts. The largest trade has been the Jul 81/85/89 butterfly. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/06/vxz.html">in the article</a>).

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

    <b>Trade Stats</b>
    Buy 2,500 July 81 Puts: $1.50
    Sell 5,000 July 85 Puts: $3.00
    Buy 2,500 July 89 Puts: $5.025

    Expo PnL
    Max Loss: 2,500*100*($1.50 - $5.025 + 2*($3.00)) = $128,625
    Max Gain: 2,500*100($4.00 - $1.50 - $5.025 + 2*($3.00)) = $868,750

    The PnL chart at July expo is included (<a href="http://livevol.blogspot.com/2010/06/vxz.html">in the article</a>).

    The bet wants VXZ to pin at $85 on expo. i.e. this bets on a vol drop.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/vxz.html">in the article</a>) illustrates the strikes being traded.

    Note that VXZ has an upside skew, like the VIX because a dip in the market generally coincides with rising vol.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/06/vxz.html">in the article</a>).

    We can see the vol rise of late and the small trend it has stayed in recently. This bets on VXZ dropping to just above its 50 DMA.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. 1) Will the "initiator" of this trade have to hold until expiration or make an "appointment" to offset the trade? :confused:
    2) !......50 DMA? I thought you didn't pay attention to "technical factors"? :eek:
  3. livevol_ophir

    livevol_ophir ET Sponsor

    1) If the trade is a winner (or a loser for that matter) he can just close it out (i.e. buy what he's short, sell what he's long).

    2) I don't, but some people do... :)