VIX Trader Drops $17 Million on Bet That Eerie Stock Market Calm Won’t Last

[ajacobson]

• Unclear if trade is bearish bet or a portfolio hedge
• VIX hasn’t traded above the 17 level since early November

By Carly Wanna
January 12, 2024 at 11:07 AM CST

A trader snapped up call options tied to the Cboe Volatility Index, positioning for a pickup in stock market swings within the next month.

A trader bought about 250,000 call contracts on the VIX Index with a strike price of 17 that expire on Feb. 14. The trader spent about $16.7 million in premium, with each contract costing between roughly $0.63 and $0.67. The VIX hasn’t traded above the 17 level since early November.

“It’s hard to know if it’s an outright bearish bet on the market, or an aggressive portfolio hedge after a big move,” said Steve Sosnick, chief strategist at Interactive Brokers. “Either way, it expresses concerns that we could see a bit of a pullback during or after earnings season.”

A sense of calm has descended on the stock market that’s trading steps away from an all-time high, and the position implies a modest pickup in volatility in a little over a month. The trade captures potential moves on a number of key data figures, including consumer price index which will be released the day prior to the expiration date, as well as potential swings as companies report fourth quarter earnings.

 

[mervyn]

I have 10 Feb 13 calls from November last year as a bet, which were 50% in red. anyway 3-months bearish bet is a protection strategy.

 

[nitrene]

This rally since the end of October is mostly a Bond market rally so you would need a rise in inflation expectations or an increase in treasury auctions. Listening to what Yellen has to say about it will be important.

It seems since the 10 yr rates no longer go lower the equity rally has topped out. There still seems to be a buy the dip mentality which keeps the VIX from rallying.