- Wednesday morning, at expiration, the VIX futures and quoted VIX come together with the VRO quote that is used to settle the expiring option
- The VIX tends to close low on Fridays -- anticipating the time value loss over the weekend
- The market has been on a long bull run, a little profit taking seems in order
- VIX futures are at approximately 22.95, The VIX is at approximately 22.4
- Since the VIX futures are near the 22.5 strike point the premium is attractive (implied volatility of ~75)
I created a vertical spread with VIX 10 Oct options ( 12.70/13.20 bid/ask) as the long ITM portion, with VIX 22.5 Oct options (.90/1.05) as the short side. I put in a debit order at 11.95 which did not fill, and then changed to a 12.00 order which filled at 12.97 / .97. This fill re-enforces my observation that the VIX option orders will usually fill at split the ask/bid + a few dollars in the market maker's favor. This fill is much better than the quoted net of (long asked) 13.20 - (short bid) .90 = 12.30. The difference in best case profit for this 4 day maximum investment is .5/12 (4%) vs .2/12.30 (1.6%) -- so obviously playing the spread is important. The break even of this position is at a Oct VRO of 22.00.
I put in a limit order to close out the position at a credit of 12.40.