I came across a trade from Wednesday and headed down to the VIX pit to ask some questions before putting up a block trade blog. The response I got was, “Do you want to hear about something more interesting than that?” Usually when a question is answered with a question it is an indication that you should go elsewhere for answers. This is not one of those cases.
In trader terms a “stupid” option trade is when a trades comes in a purchases two different options in a spread trade. We see these sort of trades on the call side in the VIX pit periodically. Usually the trade involves the same expiration, but different strike prices. The “more interesting” trade that was relayed to me involves a buyer of two different expirations with the same strike price. As of mid-day there was a buyer of nearly 100,000 VIX Jun 20 Calls who also was purchasing VIX Jul 20 Calls. They paid as high as 0.33 for the June 20 Calls and 0.93 for the July options.
Basically they are loading up long volatility into what is usually considered a slow period of time during the year, so the expectation here is anything but a calm stock market. The two payoff diagrams shows VIX and the respective futures prices and assume the trade is held to expiration. Usually traders plan on taking profits is VIX options on a volatility spike so I’ll keep an eye on the 20 line if any such spike emerges over the next few weeks.