Today, while I was teaching at the Options Institute, a roar came up from the VIX pit about an hour into the trading day.  Despite the tumultuous market activity that we have experienced to begin the year, the audible volume from the open outcry pits has been fairly tame.  What got the guys going today was a very large ratio spread using January VIX Calls that expire on the open next Wednesday.

The specific trade sold well over 100,000 of the 22 Calls and purchased twice as many of the 30's.  To bring things down to a workable visual let's just say they sold 1 VIX Jan 22 Call at 3.35 and then purchased 2 VIX Jan 30 Calls for 0.95 each.  This results in a credit of 1.45 for each 1x2 spread.  At the time VIX was near 25.50 and the January futures trading at a small discount to spot VIX.  The payout at January 20th VIX settlement appears below.

VIX 1 x 2

This trade works if one of two things happen – either a drop below 22.00 where all options expire out of the money or a big rally to the upper 30’s.  Of course a big move in either direction may result in this trade being taken off early.  I’ll be watching those two strikes for the next week or so to see how this one may be managed.