A Little More Color on Yesterday’s Big VIX Option Trade

Yesterday I participated in a webcast with Mark Sebastian from Option Pit shortly after the market closed.   The first thing he said to me was, “did you see that big VIX put trade today?” Since then there has been more discussion of VIX put volume and the buyer of VIX Dec 12.50 Puts that came into the market yesterday. The specific trade was a buyer of 175,000 VIX Dec 12.50 Puts at 0.13. The payoff diagram below shows the outcome if this position is held through settlement on Wednesday December 17th along with yesterday’s VIX and December VIX futures closing prices.  As a friendly reminder, VIX options and futures are AM settled contracts so these options will cease trading the day before on Tuesday afternoon. Any settlement below 12.37 will result in a profit for this trade.

VIX Long P Payoff

Upon hearing about this trade, I decided to take a look at the eleven VIX settlements in 2014. The lowest VIX settlement this year was in July at 11.03 with the highest settlement in October at 15.92. The average this year has been 13.51, but there have been several settlements below the 12.37 break-even level for this trade.  The graphic below shows the settlement levels in 2014 with the trade break highlighted.

Long P Break Even

I’m always around for VIX settlement ready to tweet or blog depending on the circumstances. Shortly after the open on December 17th I’ll be keeping a close eye on December VIX settlement and where it comes in relative to this particular trade’s break-even price.