Monday, March 16, 2009

VIX Expiration Condors

A quick reminder for anyone holding VIX options or contemplating VIX options trades in the next day or two that the last day of trading for VIX March options is tomorrow. VIX options expire on Wednesday, with settlement at the open of trading for SPX options on Wednesday morning. For those that have not done so already, I recommend bookmarking the OCC options expiration calendar, which I have included as a permanent link in the right hand column of the blog.

As VIX options expiration approaches, I am reminded of one trader who likes to go long iron condors, usually on Monday or Tuesday, in a bet that the VIX will be relatively quiet prior to expiration. The iron condor trade is very similar to A VIX Butterfly Play, which I described last month (see also Follow Up to “A VIX Butterfly Play”), with one exception that the condors have a wider maximum profit zone, but smaller maximum upside. There are some other practical differences between a butterfly and condor as well, notably that the condors are less likely to require follow-up position adjustments and additional commissions. Perhaps more germane to the trade above, it is sometimes appropriate to let condor trades run to expiration, but this is rarely a desirable approach for butterflies.

The chart below outlines a VIX iron condor trade, with data from optionsXpress this morning. I call these pre-expiration trades “expiration condors.”

For more information on iron condors and a broad range of excellent options-related content, I recommend visiting Condor Options.

[source: optionsXpress]


Bill Luby said...

As an aside, another interesting VIX expiration trade to check out right now is selling the March 40 put, which is currently trading at 0.50 to 0.65.

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