Week in Volatility

Another positive week for the market, and negative week for volatility. VIX and VSTOXX long term contracts continued to fall, declining by about a vol point. VIX Feb futures having only two full trading days to go settled at 16.60, a vol point above the index.

VIX Expiration, Interesting Action in VIX Binaries

$VRO printed at 22.97 - vs my forecast of 24.97, and market forecast of 29.44, here. September was a tricky month to trade - the swings in the beginning of the month, and rapid decline of VIX/VIX Futures made for a lot of excitement, but I had my best month in terms of PL. My forecast for October expiration (in 34 calendar days) is 22.62 with standard deviation of 5.18. Market forecast this morning is 25.55 with std of 6.19. I'm still trying to figure out my game plan for October - the sweet spot is at 25, significantly above my forecast, but about on par with the futures. On the other hand if volatility picks up (and there's plenty of time and fundamental weakness for it to do so) 25 VIX may seem low.

There was some interesting action on Tuesday in Binary VIX Options: Sep 20 Puts were (suddenly?) bid up. I saw bid at 0.07, to 0.10 200 contracts, which is big for binaries. VIX made a brief dip below 20 that day, but given there were just few hours to go these options seemed hugely expensive. VIX closed at 21.56 and puts close at 0.05 bid. My boss said that perhaps someone was taking profit, as there was 200+ open interest on the puts, however I don't think that was the case. I don't have historical data for options, however knowing VIX history I am pretty sure that that was the highest price for the contract.

VIX Expiration

$VRO settled at 24.82, only 2 cents away from my last-month forecast of 24.80, here. Although I wish I could attribute such amazing accuracy to my forecasting skills, luck has played a significant factor. My forecast for September is 24.97 with standard deviation of 5.45, vs market's forecast of 29.44 with standard deviation of 7.45. I have a lot of concern regarding skew trades into Sep, and especially Oct expirations, so plan to proceed more cautiously. Good luck traders, and hedge your deltas!

VIX Expiration

About a month ago I made a prediction - VIX will expire at 26.58 +/- 5.86 vs market's forecast (derived from futures and options prices) of 28.50 +/- 7.56. I'm still waiting for the official $VRO print, but last night VIX closed at 23.93, and opened this morning at 23.61, making my forecast closer.

It was interesting to note that even short-tern VIX options command exorbitant premiums. For example, 26-strike calls that had only overnight risk closed at 0.05-0.1. That was not a misprint - 2 points OTM calls were nickel bid and I sold one contract (just to test the market, not as a strategy) Implied volatility bid was 130% .

EDIT: VRO @ 23.79