Giant VIX options trade by betting that peace on the stock market will not last

As the lull descends on the U.S. stock market announcing one record after the next, one option trader seems to be making a big bet that the calm won’t last.

Someone shook the option screens on Thursday morning, betting that the VIX index will rise to 40 – and will not be lower than 25 – in July, with approximately 17 levels at which the volatility meter is currently trading. The trader appears to have made several block deals, buying a total of about 200,000 calls. That’s almost as much as the total daily volume of VIX calls, based on an average of 20 days, according to data collected by Bloomberg.

Concerns about everything from the impending tax increase to the speed of economic recovery and rising inflation have worried traders that the current calm on the stock market will be short-lived. With the cost of protection falling amid the rise of the market, some are burdened with protection in case things turn south.

“With VIX prices in the low 17 area, I guess we’ll see more of these larger bets,” said Kris Sidial, co-CEO for investment at Abrus Group. “I think smart money understands that, although volatility has declined a lot in the last two months, we still see signs of excessive market fragility from many different angles.”

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The trade increased traffic and helped call Cboe VIX call options about four times more than earlier in the day, the level last seen in late August 2020. Overall, about 1 million in combined VIX options traded on U.S. exchanges from 2:25 p.m. in New York, most since mid-February. That, as a measure of the projected 30-day changes in U.S. stock prices resulting from no-money options, was 16.9.

The trader probably made the purchase through several tranches, first buying 100,000 contracts in two block stores, and then returning for another 100,000. They paid $ 3.40 for calls at 25 and received $ 1.30 for selling 40 calls.

The trade comes when the rising S&P 500 index makes hedging cheap. The costs of options that protect against a 10% drop in the largest exchange-traded fund that tracks the S&P 500 index per month relative to bets on gains of the same size are the lowest since late February 2020, just before the pandemic launched U.S. stocks. bears at the fastest recorded pace, according to data collected by Bloomberg.

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