Huge Vix Call Buyer Today

Institutional Order straight from the CBOE’s VIX Pit earlier this morning: A customer bought 30,000 VIX July 21 Calls for $1.075

Lets break down this trade:

Risk: $107.50 per 1 lot
Reward: Unlimited
Breakeven: $22.075 (excludes transaction costs)
Cash Outlay: $3,225,000

Greeks of this Trade:
Delta: Long
Gamma: Long
Theta: Short
Vega: Long

Cash VIX was near 18.09 and July VIX Futures (expiring Wed. July 17th) were slightly higher at 18.18 shortly after the trade went up..

VIX is the ticker symbol for the Volatility Index owned and managed by the Chicago Board of Options Exchange (CBOE). Also known as the investor fear gauge, VIX serves as a calculated measure by the CBOE on the volatility of the out-of-the-money S&P 500 options for the upcoming 30 days. Introduced in 1993, it embodies the implied volatility on a wide range of S&P 500 options, calculated from both calls and puts.

Being and indicator of how much the market can move, as VIX climbs higher, it signals greater volatility in the equities market. It examines the daily and monthly changes to test how much the market can fluctuate going forward. VIX, represented by a numerical value has historically stood between 13 and 17 points. During the financial crises the number climbed as high as 80. Values under 20 typically represent less stressful market conditions while values above 30 can show high levels of uncertainty amongst investors.

Mathematically, the VIX value shows the positive or negative move of the S&P 500 index over one standard deviation. A value of 16, for example, implies the S&P 500 can stay within a +/- 16% range over one year with an overall 68% chance.

The volatility index allows large funds to hedge their risks on majority long positions. This provides insurance for portfolios such as 401(k), IRA and other largely diversified collection of investments. A hedge fund may utilize the VIX to balance the risks on their books in the event of a market reversal. One trading strategy includes buying VIX options to hedge against a potential surge or downdraft in the financial markets.

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Andrew Keene

keeneonthemarket.com

Andrew Keene was an independent equity options trader on the Chicago Board Options Exchange for 11 years. He spent most of that time as a market maker in over 125 stocks, including Apple, General Electric, Goldman Sachs, and Yahoo. From 2006-2009, Andrew was the biggest, independent on-the-floor Apple trader in the world…