VIX, Volatility Index, Dangerous Calls or Negative Time Decay?

Volatility is currently at extremely high levels, as measured by the CBOE Volatility Index (VIX). VIX cannot by itself be purchased (as a regular stock), but its options can, both calls and puts. VIX options are European style (they may only be exercised on its expiration date, but may be traded freely at any point in time)

In theory VIX goes up when volatility goes up, in practice, it goes up when the markets drop. An investor may think on buying VIX calls to profit from volatility. Profits may be much lower than expected however. Please take a look at the chart below which shows the VIX over the last 5 days, as well as some of its in-the-money call options.



(Please click on image to enlarge)

On Monday at noon, VIX was trading at $63. Its call options were being traded as below:

VIX: $63
CALL 50: $5.20
CALL 60: $2.70
CALL 70: $$1.40

You would expect that call 50 to be trading at least at $13, and that call 60 at least at $3. I fact you would expect them to be trading much higher than that as the time to expiration is still another 4 weeks. It is as if there is negative time decay. If VIX were to remain at the current price, the VIX calls would appreciate over time.

Further data from Friday 1:30PM:

VIX: $78
CALL 50: $10.60
CALL 60: $6.60
CALL 70: $$3.50