SPX Variance Swap Curve - Will the front of the curve collapse?

SPX Variance Swap Curve - Will the front of the curve collapse?

Early last week, we visited the idea that traders had bought up so much front month gamma/vol to help protect positions from

1) Short long dated vol
2) Neutralize gamma bets
3) Get long gamma in case the world “blows up”

Our trade idea was to short the SPY Dec 95/130 Strangle @ $3.50

To understand the extreme the front is bid, have a look at the SPX Calendar spreads below vs the 12 month


Spreads have massively inverted.  In spite of the current daily moves, if we happen to get a rally or a couple of quiet days, the cost to hold the front month options will become a)very expensive and b) supply of front month options will be very high causing the front months to collapse and the curve to steepen.


Current SPX Variance Swap Levels