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Big Time VIX Trades Could Mean Volatility Is About To Decrease

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Several large VIX trades suggest volatility could be getting ready to decline. – PowerPoint PPT presentation

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Title: Big Time VIX Trades Could Mean Volatility Is About To Decrease


1
  • OPTIONS TRADING RESEARCH

Big Time VIX Trades Could Mean Volatility Is
About To Decrease
2
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  • Hi, My name is Steve and Im with Options Trading
    Research, today were reviewing our recently
    published article

5
  • Big Time VIX Trades Could Mean Volatility Is
    About To Decrease

6
  • The VIX continues to generate plenty of financial
    news as it remains elevated above normal levels.
    Volatility has started to settle in recent days,
    but dont expect a complete capitulation until
    after the next Fed meeting.

7
  • As a reminder, the VIX (SP 500 Volatility Index)
    is a measure of implied volatility levels on SP
    500 options. As many of you know, the VIX is
    often considered the markets fear gauge. Overall
    market volatility is most commonly tracked by
    watching the VIX.

8
  • For those who are interested in learning more
    about the VIX, the CBOE VIX mini-site has a ton
    of valuable information on the index. Follow the
    link if you want to learn more.

9
  • Theres been renewed interest in volatility and
    volatility products since the correction at the
    end of August. Regardless of whether youre
    interested in trading volatility ETFs or VIX
    options

10
  • (or futures) the benchmark volatility index is
    always worth keeping an eye on.
  • Ive written a lot about volatility in the past,
    and you check out this article to learn more
    about why volatility is important.

11
  • Now, lets take a look at interesting VIX action
    form this week. It could give us some clues as
    to what to expect from the market over the next
    few weeks.
  • Heres the deal

12
  • A massive amount of VIX September call selling
    occurred this week. Specifically, a trader sold
    20,000 September 22 calls, 20,000 September 23
    calls, and 50,000 September 27 calls.

13
  • These sales happened with the VIX roughly around
    25. A massive amount of VIX September call
    selling occurred this week. Specifically, a
    trader sold 20,000 September 22 calls, 20,000
    September 23 calls, and 50,000 September 27
    calls.

14
  • These sales happened with the VIX roughly around
    25.That means 40,000 of the calls were in the
    money and 50,000 were out of the money, but still
    held plenty of value.

15
  • Heres the best part the trader generated 25.7
    million in cash from the sales!

16
  • Okay, so whats the story with this VIX trade?
  • Heres the chart of the VIX

17
(No Transcript)
18
  • The VIX is still trading well above the 50-day
    moving average and nowhere near the lows of the
    year. Even at 25, the VIX is very clearly
    elevated compared to where its traded for much
    of the last year.

19
  • The trader behind the large September spread is
    likely betting the VIX is going to selloff by the
    end of September. It could potentially make a
    run at the 50-day moving average before
    expiration.

20
  • So, given the recent history, how likely is it
    this VIX trade will be a winner?

21
  • Well, if we looked at it like an opening trade,
    it does make a lot of sense. The VIX has been
    very elevated, and will probably remain high
    until after the Fed meeting (and interest rate
    decision).

22
  • Afterwards, its highly likely volatility will
    drop sharply. However, in this case the trader is
    likely cashing out on profitable trades well,
    very profitable trades.

23
  • Still, this trade doesnt happen unless the
    trader feels the VIX is done moving higher. Once
    that happens, reverting to the mean is a very
    strong possibility in the near future.

24
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