HEAVY CALL BUYING IN VIX OPTIONS SPARKS FEARS
Fears are rising that the fear trade might be back. The IB Options Desk reports (juice is in the second paragraph):
VIX – CBOE Volatility index – Summer’s here – you can tell by the fact that volatility is on the wane again that investors are winding down for the summer season. The market’s fear gauge has slipped back again and stands at a level not seen since last September. Today the VIX is trading at 27.45 as most investors see less need to pay higher premiums for protective strategies. Meanwhile, signs of recovery have created the impression that a market rally might feed on itself and has prompted many investors to write options recently. There hope is that as implied volatility erodes the fact that premiums will deflate would afford profits by buying those same options back later.
However, the noise coming out of the Chicago Board Options Exchange today is over a July call spread using VIX options that relies on a market swan dive over the coming 41 days before it would earn profits. One trader spent an $850,000 premium on buying 20,000 July calls at the 45 strike while selling the same amount of 55 strike calls, thus lowering the overall premium to 42.5 cents. The VIX hasn’t traded above 40 since April 21 and we’re wondering what this guy knows that no one else does.
Great stuff TPC. Gotta admit I hated your new layout at first, but I live the new features you’ve added. Trade of the day is a must read for me. Keep up the great work.
Hank
Hank,
I’m still tweaking the site. I’ve had mixed reviews so far, but I think once I get it cranking that people will really like the new layout. The old blog format was too restricting. Anyhow, thanks for the nice words.
10/10
“we’re wondering what this guy knows that no one else does”
If the “guy” is Mr. Goldman Sachs, then I’m guessing a lot of people would be nervous.
I should add Hank – don’t expect a new Trade of the Day each day. I am trying to post constructive actionable trading ideas. I am not gonna just start throwing ideas out there like it’s Cramer’s worthless Lightning Round. But I’ll try to throw an idea out there each day for readers to chew on….Thanks again.
$850k doesnt sound like a lot for me. could just as well be some hedge fund putting on a macro hedge.
That’s a big trade on the options market.
My actionable trade idea was VXX. I think I will be adding some tomorrow. Think about it. Market goes crashing down, VIX goes nuts. We get another 30 days of retarded rallies, then people will want to protect the downside as any fool should know this thing is floating on wilting shoots.
Just throwing it out there.
Thanks again for the awesome analysis, thoughts, and information.
I’m not sure if I speak for other people reading the site when I say this – ordinarily I’d comment more, but your posts are usually dead on in a uniquely insightful way, just don’t feel like there is much to add or discuss most of the time.
Anyway, looking forward to a bright future for your blog – this is a rough time in our nation’s history, nice to weather the storm in such great company.
Anonymephistopheles – readers like you make writing the blog a real pleasure. Thanks.
Can’t say what i know but i fully think the guy knows what he is doing and is dead on right! I’m doing the same.