Why a VIX Vertical at 21 Was Only Worth $1.20
By Brandon Chapman, CMT
Hey trader,
I closed out a VIX 20/25 call vertical Friday morning for $1.50. I bought it for $0.71.
That works out to a 111% return on a hedge that did its job while the market sold off.
But the exit almost did not happen. Thursday, with VIX above 21, the spread was only pricing at $1.20.
That puzzles most traders. If you own the 20 strike and VIX is at 21.20, the spread has $1.20 of intrinsic value. You would expect to sell it for more than that.
You could not. The spread needed VIX to reach approximately 22 before my $1.50 limit order could fill.
Understanding why that gap exists changes how you time exits on every vertical spread you trade.
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