VIX Ratio Spread Today

With the VIX trading at 15.75, I noticed the following spread in the VIX pit:

Paper (an institutional client) bought 8,000 December 16-15 1×2 Put Spreads for a cost of $.075

They bought 8,000 December 16 strike VIX puts and sold 16,000 December 15 puts.

Why would they initiate this trade? Investor thinks the VIX drifts lower towards 15 at expiration.

Reward: $92.25 per 1 lot (VIX at 15)

Breakevens: 14.075 and 15.925

Risk: $1407.50 per 1 lot (Notes: If Vix closes above $16, the trade will only be out $.075 per 1 lot or $60,000 total)
The major risk is the VIX below 14 at expiration.
Dollar Risk: $11,260,000 (VIX at 0)
Dollar Potential Reward: $738,000

Directional Bias: Trader makes Money if the VIX is flat or grinds lower.

Regards,

Andrew Keene

http://keeneonthemarket.com
andrew@keeneonthemarket.com

Follow Me on Twitter