VIX options traded roughly 1/2 million contracts today. A large VIX trade drew my interest. It was the January 25 – 20 VIX Put Credit Spread. It accounted for approximately 20% of VIX volume.
The VIX January Futures closed today at 19.99 – up 0.79 for the day. Spot VIX closed at 17.06, up 2.03 (that’s a 13.5% gain today). A customer (probably a mutual fund, hedge fund, retail bank, or big trader) sold 50,000 of the VIX Jan 25 puts and bought 50,000 January 20 strike puts for a credit of $3.875. Keep in mind that January VIX options are based on January VIX Futures.
This trade is profitable if at January expiration the VIX closes at any level above 21.125. Anywhere below that and the trader will lose money.
Risk: $112.50 per 1 lot
Reward: $387.50 per 1 lot
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