The S&P 500 put up a nice week and VIX came under pressure closing Friday at the low for 2015. Take it how you want, either that there is nothing to worry about for the markets or there is too much complacency and we are ‘doomed’ (my favorite Charlie Brown word) to experience a pullback in 2015. Either way, if you are concerned about a market correction this year, there appears to be a sale on SPX options.
VIX option volume was well over 1,000,000 contracts with one big trade attributing to more than half the volume. Someone came in and sold 181,420 of the VIX Jun 17 Calls, sold 84,280 of the VIX Jun 20 Calls and then finished up by purchasing 362,840 of the VIX Jun 23 Calls. The approximate cost for this trade, when all was said and done it appears the trader behind this took in a credit of over $11,000,000. Using this figure, the payout at expiration is illustrated in the payoff diagram below.
I have no idea what other positions this trader has on or what the ultimate goal is, but I can take a look at what this trade looks like if held to expiration. I think it goes without saying that VIX under 17 at June expiration would result in a pleasant result. On the flip side, a June VIX settlement around 23 would result in a nine figure loss, something I’m sure whoever was behind this trade would like to avoid.