The Question For VIX Traders Today: To Monetize Or Not Monetize?

VIX is a mean reverting index and because of that aspect of price behavior traders who have long exposure to VIX often have a window of profitability to exit the trades when VIX spikes to higher levels. Today was one of those days and after digging through the tape we did not find too many trades that appeared to be exiting long volatility. With the lack of exiting trades, it is interesting that the S&P 500 closed on the session low and VIX on the high, keeping long VIX positions was the smart move. At least through the close.

There were a couple of trades that appear to have taken profits today. First, there was a seller of just over 50,000 VIX Apr 20 Calls at 4.90 who also purchased 50,000 Apr 30 Calls for 1.49 taking in a credit of 3.41. A similar size trade buying the Apr 20 Calls for 1.18 and selling the Apr 30 Calls at 0.41, costing 0.77, hit the tape on March 26. The net result is a profit of 2.64 for this bull call spread.

A side note with respect to this trade, typically when we have a bull call spread reach an exit point, we sell the long call and purchase a farther out of the money call turning the bull call spread into a bear call spread. For example, the trade above we may have sold the 30-strike call and purchased the 50 or 60-strike call. The goal is a bear call spread that is likely to expire out of the money. However, if there are concerns over VIX moving to higher levels, we would exit the entire spread.

A second trade that appeared to be taking profits sold 10,900 VIX May 35 Calls at 1.54 and purchased the same number of VIX May 47.50 Calls for 0.84 taking in a credit of 0.70. The entry for this trade occurred over several days in mid-February with the May 35 Calls purchased for 0.90 and 47.50 Call sold for 0.58, a cost of 0.32. One interesting aspect of this trade is that VIX was at 28.69 and the May future at 23.00 when the exit trade occurred.

Again, with VIX finishing the day just over 30.00, those that are stuck with long VIX probably feel good about that decision. It will be interesting to see if more exit trades hit the tape on Friday as April VIX expiration is just a couple of weeks off.