Home / Business and Economy / Mystery $6M Trade Bets on Falling VIX
Mystery $6M Trade Bets on Falling VIX
16 Sep
Summary
- A $6 million trade in deep VIX puts suggests anticipation of volatility decline.
- The trade occurred before the Federal Reserve's expected interest rate hike announcement.
- Market makers are divided on near-term outcomes despite a high certainty of a rate hike.
A substantial $6 million trade involving deep in-the-money VIX puts was executed on Tuesday, signaling a strong conviction among some options traders that volatility will decline. This large bet was placed ahead of the Federal Reserve's upcoming rate decision, which is widely expected to include an interest rate hike.
The purchase of 563 110-strike VIX puts and 130-strike puts, expiring in October and November respectively, represents a significant deviation from typical trading activity. The VIX index closed Tuesday at 17.2, making these deep in-the-money options a substantial play on decreasing volatility over the next two months.
Despite the bond market indicating a 90% certainty of an interest-rate hike, there appears to be a divergence in sentiment among market makers regarding volatility products. Options volume in the VIX has remained elevated, yet S&P 500 swings have been minimal, creating an unusual market dynamic.
