VIX Trader Betting $13 Million on 88% Jump in Fear Gauge

According to Bloomberg,

An investor bought $13 million in call options on the Chicago Board Options Exchange Volatility Index, betting the gauge will rally at least 88 percent in the next four months.

About 100,000 VIX March calls were purchased with a strike price of 23 for about $1.30 each, according to Trade Alert LLC. The contracts were among the five most-traded on U.S. options exchanges today, based on data compiled by Bloomberg.

Chicago Board Options Exchange

Chicago Board Options Exchange

 

 

 

 

 

 

 

 

In another transaction, a person spent $5.1 million in a bet that the Standard & Poor’s 500 Index will rise more than 10 percent in the next three months. The trade involved buying about 31,000 February calls for about $1.65 per contract with an exercise price of 1,975 on the U.S. equity benchmark, according to Trade Alert.

“The S&P 500 (SPX) trade looks like a melt-up trade and the VIX trade is the melt-down trade,” Justin Golden, a partner at Lake Hill Capital Management LLC, said in an e-mail. The New York-based hedge fund trades options on equity indexes and commodities. “Either way, in order for either of these to pay off you need significant movement in some direction.”

The two trades — one that makes money with higher volatility, the other profiting with equity gains — show seemingly opposing wagers on the direction of the stock market as investors gauge the prospect of continued monetary stimulus after a four-year bull market. The transactions may be used to speculate on the direction of the VIX (VIX) or S&P 500, or to hedge swings in other investments.

‘More Hopeful’

The S&P 500 is up 25 percent this year, putting it on track for the biggest annual gain since 2003, as the Federal Reserve maintained bond purchases to spur economic growth and corporate earnings topped analysts’ estimates. Investors may see political turmoil over the next three months as Congress’s self-imposed deadline to agree on a fiscal 2014 budget comes next month and the law now funding the government expires Jan. 15.

The S&P 500 fell 0.1 percent to 1,789.25 at 3:32 p.m. in New York. The VIX, which moves in opposite direction of the equity gauge about 80 percent of the time, gained 2.1 percent to 13.38. The VIX was about 12.9 when the calls were purchased this morning.

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