UPDATE: Chart of the Day: January VIX Futures

Since recommending a short position on the January VIX futures contract, the market has moved favorably.  With today’s large rally in stocks underway, the VIX Index is at 21.84, and the January VIX futures contract is trading at 30.00.  When we recommended the short position, the futures contract was trading at 30.15, making for a profit of $.15 per contract (or $150 per contract).

While this amount is obviously not huge, recent action in the futures contract is very encouraging to our position.  Yesterday, the VIX traded up 8.18% from the previous day, while the VIX futures contract only traded up 1.81%.  However, today the VIX traded down -7.10% while the January VIX futures contract traded down -2.44%.  Extrapolating from these two days’ worth of data, the January futures contract is capturing 22% of the upside when the VIX Index moves up but is capturing 34% of the downside.  This is because the futures contract has such a large premium built in to the price that it has much more sensitivity to downside moves than upside moves in the VIX Index.

We continue to be bearish on the January VIX contract and plan on holding it until expiration in January, or until significant convergence to the index has occurred.

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