Huge Volatility Bets Being Made by John Fout

幸运猪

Two huge volatility bets have been made over last two trading days. Does it portend a new low or merely a hedge? Thursday afternoon a customer purchased 40,000 VIX calls on the November 65 strike and paid $3.80. They're betting that the volatility will explode in the next two weeks. Friday morning, a friend who watches the option markets closely also noted another huge VIX trade. With the VIX trading slightly under 63, another investor bought 40,000 Nov 65 calls for $4.80. The purchase was the equivalent of buying 1.75 million vega -- a massive volatility bet. Also on Friday morning, investors purchased 10,000 Nov 650/750/850 put butterflies on the SPX for a $6.80 debit. According to an analysis by one of the large options clearing firms, the maximum gain for the investor would be the SPX trading down 17% over the next two weeks. If it were to happen, it would be a new low on the SPX. Obviously, it could be a huge bet on a further market breakdown. However, the markets remain opaque, and it's always possible that VIX trade represents a hedge for something else -- possibly a credit default swap. Either way, the market could be in for a wild ride.