With VIX options expiring on Wednesday and VXX options expiring today (technically tomorrow) in the normal monthly expiration cycle, this is a big week for volatility traders who are comfortable holding options positions into expiration.
One of the things I like about expiration week is the manner in which time and volatility can sometimes become distorted, presenting some interesting trading opportunities.
Looking at the implied volatility of VXX this week, one can see that August IV (red line) was tracking in a fairly tight range of 60-70 from Monday through Wednesday. Yesterday saw a little more noise and some IV spikes into the upper 70s. Today there has been a quantum change in implied volatility, with VXX IV shooting up over 120 and gyrating wildly throughout the session, as the chart below shows. Interestingly, the underlying VXX ETF has not been particularly volatile today. I attribute much of the erratic change in implied volatility to the approach of options expiration.
While VXX options are certainly not for the faint of heart, particularly during expiration, in my opinion, these newfangled products are just the place where retail traders are more likely to be able to find an edge than some of the better-known institutional warhorses. (Click to enlarge)
[source: Livevol Pro]
Disclosure: Short VXX at time of writing; Livevol is an advertiser on VIX and More