Options Trading News

September 16, 2013  Mon 3:16 AM CT

A huge trade is looking for the CBOE Volatility Index to soar in coming months.

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.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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