Customer Trades a Big March Put Spread in VIX

I’ts the beginning of the year and BAM!!

A customer put on a pretty big trade in the VIX.

Early in the 1st trading session for the year,  a customer executed a large block of VIX put spreads in March…

  • The Customer bought 10,000 of the March 22 puts and paid $1.97
  • To reduce the cost the customer sold 10,000 of the March 19 puts and colleced .77 cents
  • This means that in total this trader bought 10,000 of the 22-19 put spreads paying 1.20.

This trade is what we call “out-of-the-money.”

What that means is that the VIX is currently over 24 and the March future is trading over 26 (remember the underlying for VIX options is the FUTURE NOT THE CASH index).

However this trader put on a spread at the 22 strike price. Thats BELOW the where the VIX is currently trading, so this spread is “out-of-the-money.”

This trader is banking on the VIX backing off substantially between now and Mid March.  His max P&L takes place if the VIX crashed below 19…

…I think this is completely possible between now and March as we will have the Georgia Elections AND the presidential inauguration out of the way by then.

This would also imply the S&P 500 has further upside, because if the VIX goes down then normally the S&P500 is going up.

The thing I might like most about the trade is how much time it has to work itself out.

This is not a trade betting that everything is going to be hunky-dory in a few weeks,  it is betting that it will happen in the next few months.

If you look at the trend in the VIX since the middle of the year…

A SLOW calming of markets has been taking place since VIX last popped in October.

This is one I might consider piggybacking in the Volatility edge.

Your Only Option, 

Mark Sebastian 


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