Tuesday, August 17, 2010

Expiration and the Resolution of our VIX adVentures.

This morning's opening prints ushered in the settlement value for August VIX options. While the VIX opened at $24.30, settlement came in a bit higher at $24.82 (click image to enlarge).
[Source: MachTrader]

In last week's Tale of the VIX and Mr. Upper B., we outlined the antagonistic past between these two foes, noting their inability to reside in the same place at the same time for extended lengths of time. The Fear Index once again followed the fairly predictable path of least resistance by retreating to its turf in the "meat" of the bollinger bands. While a continued sell-off in equities may cause yet another run-in with the upper bollinger band over the coming weeks, the ebb in fear experienced over the past few days was sufficient to deliver a winner for the suggested bear call spread.

By settling in the 23 to 24 area, our 27.50 - 30 bear call spread expired comfortably out-of-the-money. Those unwilling to brave all the settlement drama could have simply closed the spread yesterday at $.05, thereby locking in the majority of the gain.

For related posts, readers can check out:
Fading Complacency
VIX Expiration and Term Structure
VIX Options Laid to Rest as the Cash Springs to Life


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