Tuesday, June 8, 2010

VIX Mid-Term Futures (VXZ) - Butterly Bets on Vol Drop

VXZ (VIX Mid-Term Futures) is trading 92.19. The LIVEVOL™ Pro Summary is below.

The options on the ETN have traded over 10,000 times 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 (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the puts are mostly opening (compare OI to trade size).

Trade Stats
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 (click to enlarge).

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

The Skew Tab snap (click to enlarge) 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 (click to enlarge).

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.

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