Block Trades – One Bullish and One Bearish VIX Option Trade

When I disagree with someone with respect to an outlook for the market or particular stock I with often use the phrase, “that’s what makes a market”. What I mean by that is it takes people with differing opinions to create a viable and tradeable market. As I was looking at the trading activity in the VIX option arena earlier this week I can across one bullish and one somewhat bearish trade that occurred on the same day. First I’ll take a quick look at the bullish trade.

Early on Tuesday as VIX moved lower and quickly approached 12.00 a spread trade came in that is looking for a break in the opposite direction. Just after the open there was a seller of 15,000 VIX Jul 13 Puts at 0.33 who purchased 15,000 VIX Jul 17 Calls at 0.75 and then finished the trade with a sale of 15,000 VIX Jul 23 Calls at 0.33 and a net cost of 0.09. This trade works out with any sort of spike above 17.12 between now and July expiration or a close over 17.09 at July expiration. The payout for this trade appears below.

VIX Block 1

Later on Tuesday a bearish (or neutral to bearish) trade came into the VIX option pit. The final big trade of the day in VIX there was a seller of about 37,000 VIX Jul 17 Calls at an average price of about 0.60. This trade was done in several blocks with the majority being executed at 0.60. Note the payout below, assuming this position held to expiration. Also, note the right side of the payoff diagram that just keeps going and going. This sort of trade is definitely not for the faint of heart.

VIX Block 2

Two big trades in the VIX option pit on the day that VIX closed on the current low for 2015 (12.11). The first trade was bullish and the second trade was bearish on the outlook for VIX between now and July expiration. Time will tell if either (or even both) of the trades result in a payoff for the respective VIX option traders.