volatility switches

always watch the VIX threads with interest, i think most do. this one had me poking about the option chain.

noticed ~30K+ each going off on the JUN 30s / JUL 32.5s, the same diagonal went out at .55 today (long he back JUL 32.5s, short the front JUN 30s). that'd be over $1.5mil., the payout if held till expiration in a few weeks, with the VIX anywhere from from about 20 to 30, ranges from breakeven to 9 million.

would something like this be held till expiry? or flipped if/when the diagonal hits a fair return between now and then? (what would the commission be on an institutional sized block of 30K contracts?)

i guess i'm asking if this a trader looking to pull out a $50k-$100k on a quick flip, or is it someone hedging (speculating, if naked) that if the VIX goes out at 25-30 in a month, they pocket a 3x to 5x return on that 1.5mil, and still hold the 32.5s for JUL.

.... and can we small fish shadow this action, or be warned away by it?

(as someone/something had to have been the other side of that trade, looking to make anywhere from BE to 1 mil with a VIX 17-20 by expiry.)


--pfl
 
Quote from tenthousandmen:

atticus, thanks for the great thread.

Are you trading the contracts or etn's? You don't mind the low volumes on the contracts? :cool:


edit--have you thought of doing spy or qqq options to trade volatility instead
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The CFE futures. I trade a lot of other stuff.
 
Quote from atticus:

Out all at 1.58. Expected more upside to S&Ps. I think we may trade flat ES by 10am.
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Flat ES, 10mins ahead of schedule. 1.32 mid on the switch.
 
Quote from ogarbitrage:

Vix futs spreads perform in the typical bull/bear fashion based front month?

IE: -june / +july is a bearish VIX spread?
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For the most part, yes. Can invert at bottom/top deciles.

I don't look at a price matrix outside of the front month spread unless the front looks good.
 
Quote from pikerforlife:

always watch the VIX threads with interest, i think most do. this one had me poking about the option chain.

noticed ~30K+ each going off on the JUN 30s / JUL 32.5s, the same diagonal went out at .55 today (long he back JUL 32.5s, short the front JUN 30s). that'd be over $1.5mil., the payout if held till expiration in a few weeks, with the VIX anywhere from from about 20 to 30, ranges from breakeven to 9 million.

would something like this be held till expiry? or flipped if/when the diagonal hits a fair return between now and then? (what would the commission be on an institutional sized block of 30K contracts?)

i guess i'm asking if this a trader looking to pull out a $50k-$100k on a quick flip, or is it someone hedging (speculating, if naked) that if the VIX goes out at 25-30 in a month, they pocket a 3x to 5x return on that 1.5mil, and still hold the 32.5s for JUL.

.... and can we small fish shadow this action, or be warned away by it?

(as someone/something had to have been the other side of that trade, looking to make anywhere from BE to 1 mil with a VIX 17-20 by expiry.)


--pfl
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Well it's only a diagonal due to the term structure as jun/jul went out at 1.50 yesterday. I would imagine the logic behind it as a play on the switch rather than an outright d/g position.

IOW, he's long the jun/jul (futs) spread via the options. He's neutral to short convexity today. The position will flip modality (gamma) as time passes or the spread were to invert or the cash drops significantly. You can bet that jun/jul will not trade at a credit (futures).
 
Curious: how closely does the term structure (http://www.cboe.com/data/volatilityindexes/volatilityindexes.aspx) correlate to those futures prices? The June vol is at 21.67, for instance last I looked, while the VIX is higher at around 23, and the June futs are at the mid 25 level or so as I type this.
Is that June vol number really what you should be watching if you're speculating in the front month? Logically that would seem to be the case. I would think the futures would have to converge to the vol figure you see here, although as you get to about a week and a half or so to expiration and less it probably starts to diverge again, as the futures expire on a different date than the options on SPX, so as you get closer the difference in those expiration dates becomes large as a percent of the time left on each.
 
Quote from trefoil:

Curious: how closely does the term structure (http://www.cboe.com/data/volatilityindexes/volatilityindexes.aspx) correlate to those futures prices? The June vol is at 21.67, for instance last I looked, while the VIX is higher at around 23, and the June futs are at the mid 25 level or so as I type this.
Is that June vol number really what you should be watching if you're speculating in the front month? Logically that would seem to be the case. I would think the futures would have to converge to the vol figure you see here, although as you get to about a week and a half or so to expiration and less it probably starts to diverge again, as the futures expire on a different date than the options on SPX, so as you get closer the difference in those expiration dates becomes large as a percent of the time left on each.
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June vol at 21.67?
 
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