The VIX got blasted yesterday, ?so did the front month of the VIX futures term structure and SPX premiums. ?
VIX premiums on the other hand…not so much. ?There continued to be huge demand for both VIX puts and VIX calls in May, June, and July. ?In fact, while VIX has been choppy, VIX option vol has been pretty firm and rallying. ?This is likely due to earning season, and the issues in Japan. ?But, none this less, this should be noted as it seems the smart money is less than convinced by yesterday’s rally.
Notice the firmness of VIX IV, and its slow rally back to 90%. ?The point is, that while VIX may stay down here for a while, it has yet to hold, and paper is willing to bet that it could continue to be the case. ?We are not so sure about that, and like some short UVXY and VXX plays.?
The Trade:
We like owning put spreads in VXX or UVXY to take advantage of the steep curve and high skew of these options.