The VIX index measures in real-time a composite of 30-day implied volatilities of various puts and calls on the S&P 500. Puts and calls on the VIX itself for various expiration dates are traded on the Chicago Board of Exchange. On or about April 5, 2021, a trader executed a very large call spread by buying VIX July 21, 2021 calls with a 25 strike and selling July 21, 2021 calls with a strike of 40. Here are some additional details: Price of call struck at 25: 3.40 Implied volatility: 125% Price of call struck at 40: 1.30 Implied volatility: 135% Number of call spread contracts executed: 200,000 VIX level as of 4/5/21: 17.91 a) Draw the profit and loss payout of this option combination at its expiration on the graph below [Note: you may also include payout profiles of the individual options, but you do not need to do so]

b) Using the Internet or another relevant source, look up the contract specifications for CBOE VIX options. Given the multiplier formula applicable for these options, calculate (i) the total net premium cost of these 200,000 call spreads, and (ii) the maximum profit potential of this call spread. Express both answers in U.S. dollars.

Would you characterize this call spread as representing a bullish or bearish position with respect to the unerlying equity market (i.e., the S&P 500)? Briefly explain your answer.

d) Navigate to the following URL: https://www.barchart.com/stocks/quotes/$VIX/options and evaluate the prices of July expiration VIX calls as of the close of business on either Tuesday, May 4, or Wednesday, May 5, 2021. Using this table, calculate the dollar amount the trader would have to pay to exit this trade and compare that value to the initial cost of the call spread. Show the inputs used to arrive at this calculation.