Huge trade looks for volatility spike
Chris McKhann | [email protected]
optionMONSTER systems show that a trader sold 30,000 October 25 calls for $0.27 and bought 60,000 October 32.50 calls for $0.08, both in volume below previous open interest. At the exact same time, he or she bought 30,000 November 25 calls for $0.62 and sold 60,000 November 32.50 calls for $0.27.
The trader appears to be rolling forward a call ratio spread, closing the position in October and moving it to November. He or she now has a position that will profit if the volatility index rises, but it is actually movement of the November VIX futures off which those options are priced that will make the difference. (See our Education section)
The maximum gain would come with those futures at 32.50 when they settle in mid-November. The November VIX futures closed at 16.65 on Friday, about half of where they need to be at that time.
The volatility index itself finished the week at 14.16. The VIX typically moves inversely to the S&P 500.
More than 519,000 VIX options traded, topping its daily average by about 25 percent, with calls outpacing puts by more than 3 to 1.