This past week VIX did much like the rollercoaster VIX ads show, it went up and then came right back down. It was a hectic week which is typical of the week when the employment number is released on Friday. After the ride VIX ended the week up only 0.09 and the front month future was lower. Looking a little farther out, the futures all shifted lower, probably reflecting fleeting hope that we do not bump up against another Washington, DC imposed financial deadline.
On Wednesday a trade came into the VIX pit that caught my eye. Someone sold 15,000 VIX Dec 16 Calls and bought 15,000 VIX Dec 30 Calls at the same time for a net credit of 0.54. Excluding commissions this comes to $810,000 (15,000 x 100 x 0.54) of income. The goal, if held to expiration, is for December VIX settlement to be under 16.00 in the middle of December. If the trade is held to expiration and all options expire with no value the result is a profit equal to the income taken in. However, this trader was not done and there was another leg to this trade.
The same trader also bought 7,000 of the VIX Jan 16 Calls and sold 7,000 of the VIX Jan 30 Calls for a net cost of 1.25. The absolute dollar amount for this trade was a cost of $875,000 (7,000 x 100 x 1.25). When combined with the income taken in from the leg of the trade using December options was a cost of $65,000. The goal for the January trade is for VIX to have a spike sometime between now and January expiration, preferably over 30.
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On Wednesday a trade came into the VIX pit that caught my eye. Someone sold 15,000 VIX Dec 16 Calls and bought 15,000 VIX Dec 30 Calls at the same time for a net credit of 0.54. Excluding commissions this comes to $810,000 (15,000 x 100 x 0.54) of income. The goal, if held to expiration, is for December VIX settlement to be under 16.00 in the middle of December. If the trade is held to expiration and all options expire with no value the result is a profit equal to the income taken in. However, this trader was not done and there was another leg to this trade.
The same trader also bought 7,000 of the VIX Jan 16 Calls and sold 7,000 of the VIX Jan 30 Calls for a net cost of 1.25. The absolute dollar amount for this trade was a cost of $875,000 (7,000 x 100 x 1.25). When combined with the income taken in from the leg of the trade using December options was a cost of $65,000. The goal for the January trade is for VIX to have a spike sometime between now and January expiration, preferably over 30.
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