Huge VIX butterflies trade after the bell
Chris McKhann | [email protected]
The VIX finished the day down 3.54 percent at 21.54. It had been above 23 for much of the afternoon. The options volume was topped by the action in the July and August options, which are priced off their respective futures. The July VIX futures were down 1.5 percent yesterday to close at 25.95, while the August futures fell 1.3 percent to 26.55.
The VIX saw more than 715,000 options change hands, 453,000 of which were calls. This compares to a daily average of 280,000 in the last month.
The two biggest trades went off after the stock market's close, as VIX options trade until 4:15 p.m. ET.
A trader bought 20,000 each of the July 40 and 60 calls for $1.17 and $0.22. At the same time, he or she sold 40,000 July 50 calls for $0.47. About three minutes later, 20,000 each of the August 40 and 60 calls were bought for $1.59 and $0.35 respectively as 40,000 August 50 calls were sold for $0.74.
Although the volume at the 40 strike was less than open interest in both cases, it appears that these are new call butterfly spreads. These spreads are designed to profit from a rise of the corresponding VIX futures to 50 by their expirations.
The amount paid to open the positions was very small, just $0.45 in July and $0.46 in August. The potential gains are more than $9.50 under ideal circumstances but would require the VIX to more than double and stay at that elevated level through expiration. (See our Education section)