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Free Volling: As VIX Plunges, Someone Bets $6.7 Million On Prompt Rebound
While last week's relentless panic buying has been extensively commented on, it was last week's nearly 50% plunge in near-term stock vol that the major news as the world went from risk off mode to risk on. It wasn't just stocks whose volatility imploded: as the following charts from Bank of America and associated commentary show, it was the implied near-term volatility of all asset classes that was hammered in the past three days.
First equities:
Chart of the week: VXV/VIX ratio says risk rally to continue
While the VIX index has just reached fresh 2m lows, it still has plenty of room to fall; particularly against its curve. Indeed, the VXV/VIX ratio (VXV is the Bloomberg ticker for 3m S&P500 Volatility) continues to trend higher. Until this ratio reaches 1.2 or greater (indicating investor complacency) the US equity rally remains on firm footing.
But also Treasurys:
US Fixed Income volatility breakdown
The MOVE index has broken its yearlong pivot at 73.00 and completed a 3m top in the process. Expect Treasury volatility to decline further in the weeks ahead towards the May lows at 48.87 before greater signs of basing emerge.
FX...
FX volatility descent accelerates
G7 FX volatility remains under pressure. The mid-September completion of a 7m Head and Shoulders Top says that the fall in volatility can extend to the Dec’12 lows at 7.06% before all is said and done.
And Crude:
Oil volatility spills lower
After 6m of a very choppy consolidation, WTI Crude Oil volatility has broken sharply lower to resume its year and a half downtrend. The completed Triangle formation points to further downside in the weeks ahead. The initial target is the Mar-28 low at 17.60, with risk for a move to its long term channel base near 13.53.
Finally, while everyone is fascinated by the rapid VIX down move, it is what someone did on Friday by betting that VIX will double by February in a 24/29 VIX Call Spread, that was of note. The amount wagered: $6.7 million. Whether or not this was an outright trade, or a hedge (and if one listens to Jamie Dimon perjuring himself to Congress, any trade is a hedge, adding further to the confusion) is unknown, but it is not pocket change betting that the plunge in vol will be merely transitory. From Bloomberg:
An investor paid $6.7 million for a trade that will pay off if the Chicago Board Options Exchange Volatility Index more than doubles by February.
The trader today bought 160,000 bullish contracts on the VIX expiring in February with a strike price of 24, while selling the same number of February 29 calls in a strategy known as a call spread, according to New York-based Trade Alert LLC. The trade profits if the volatility gauge rises above 24.42 from the current level around 13, data compiled by Bloomberg show. It has a maximum payoff if the VIX jumps 115 percent to 29.
“This is probably an investor with a portfolio of stocks who is using the VIX to hedge against an increase in market volatility,” Frederic Ruffy, a Chicago-based senior options strategist at Trade Alert, said in a phone interview. “The focus is on the February options, so it expresses concern over what will happen during the next three months, which coincides with the next deadlines on the government budget.”
Congress resolved a deadlock on funding the U.S. government and avoiding a default this week, driving the VIX down from a three-month high of 20.34 on Oct. 8. The agreement funds the federal government through mid-January and lifts the nation’s debt ceiling until Feb. 7.
The VIX, which hasn’t closed above 29 since the end of 2011, slumped 3.3 percent to 13.04 today, a one-month low.
The purchased February 24 calls cost 90 cents per contract, while the February 29 calls were sold at 48 cents. The total cost of the trade was 42 cents per contract, or $6.7 million, according to data compiled by Bloomberg.
So with the latest can-kicking set to expire in less than three months, and at least one investor already putting in millions in a wager that Vol, currently plunging, will once again double as the Congressional dysfunction returns, one wonders: Will Mr. Chairman, who runs the world's biggest hedge fund, get to work as usual, and make sure any and all risk hedges expire worthless, as the New Normal continues to be defined by Return, and zero Risk?
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"relentless panic buying"??? All I see from the markets activity was a complete lack of concern for the shutdown that the left run media wanted us all to panic over. If you note the markets lack of fear to the shut down, you can only come to one conclusion, the market is going to rally for a lot longer and higher than anyone thinks.
It is like wtc 7. It is when the money masters decide to pull the fucker.
I didn't know NYFD was a money master.
Huh?
"Huh?"
NYFD decided to pull (out of) WTC7, considering they were concerned it might collapse.
The building was imploded through controlled demolition. Watch it...
http://www.youtube.com/watch?v=Zv7BImVvEyk
How silly of me, a 300% rally in 5 years is all manipulation. I guess all the friggin' money companies are sitting on is a myth as well. Those blocks long lines of people begging to buy $600 smart phones must be computer generated forgeries as well. So are those record sales from Xmas sales every single year. Keep fighting the tide, it's working so well why quit now?
P.S. Let us know when all is safe and you believe the bull markets "for real" and "going to the moon" so we can all sell.
>> the left run media
Left run media? Fucking idiot.
You're right goatbeard, it's the pinko fagot-loving commie fudge-packing lying left run media
You forgot limp wristed and bed wetting for the pinko commie fags.
Showing our age, aren't we?
Beats the alternative
And I swear ZH has been infiltrated by a bunch of CNBC (Communist Nutball Bullshit Committee) types here!
I bet that Leninist Steve LIEsman is lurking here. He should go shine his dome that douche!
No dude.. I confess... I did it..
And I got the next round if it workd out!
The media is not left run, it is corporate run. The left and right are just flavors of the same ice cream.
The vizx is a tuff option trade. Who knows who did that. NIce pick up, nothing can be done to anticipate what marky is going to do.
just don't forget the last 'big VIX bet' that was made this past summer for Sept mid20s: that bet ended up as BIG LOSS. no one fucking knows shit and it's all distorted and deformed, but in theory an excellent similar bet for sure.
Only a couple people know for sure what that bet is all about. Could be insider trade, could be a hedge, could be part of a derivative play. There is so much going on and in low interest rate environment it may even just be part of an arbitrage play to eke out a point or two.
What's a VIX again?
And what the hell is this?
http://www.usdebtclock.org/
Best Buy, Chipotle, & Tesla will go up forever.
My thoughts exactly!
"VIX"? This has no resemblance whatsoever to the real world or the real economy...it's a derivative of a derivative (SPX) of a derivative (paper dollar) on the real world.
May these game-players all rot in hell.
So what's the P/E for VIX?
/sarc
(don't know why i'm in such a helping mood today?) Here's a tip, if you find yourself typing /sarc just hit delete and start your post over again.
Nothing to concern yourself about. Ignore the bloggers. Maria has you covered. More importantly, what's Beiber up to these days? and what cool app did you just get for your new iPhone 5S?
And who the fuck are the trolls here!? Pussies.
It wasn't me.
Of course it wan't you. The guy was an optimist, he actually believes CBOE will still be solvent and operating in February.
Ah, it must be nice to have all that excess fiat Currency, to be able to make all these bets on other bets.
And the cheering of the crowd reminds me of taking sides on which charioteer or gladiator we favor, while still partaking in the same Big Game, the same Big Fraud.
Put it all on da black.
You got it Winston. Then sit back, light a good cigar and enjoy a dose of Metaxa 7 Star!
Perhaps Bart should look into this. Why is someone purposely trying to derail the American dream (for the top 0.001%)?
Great title ...
FREE VOLLING!
"Buying free .... free volling, yeah it's free, free volling ..."
I want to know when you boomer doomers all are back up to weight in equities because I am the guy who will be saying, "pull it".
Have a great day ;)
That's not nice. This guy needs to be scrutinized. We know your ipeas address, and we can track you down Mr Man. Come back around here and Tyler will get DosZap to Dos Zap you.
Market called the Kabuki what it is, so the deal has been priced in. I don't think this VIX-buyer did only a hedge on it, I think he'll be out with a gain before month' end.
Considering that: Yellen will be FED Chair, the politicians will collude to keep the Ponzi going, and anyone interfering with the Ponzi will be labeled a "seditious traitor" - this is not a wise bet.
Unless, of course, said bettor is big enough to make a bet large enough to move the VIX itself.
But that could never happen in our efficient and well-regulated markets based on fundamentals.
:-/
Bad bet. Very bad bet.
The market is FED software that is funded with an infinite supply of FED electrons.
Additionally any and all measures to keep the indexes going up has the full backing of Washington D.C.
BTFD up until an Extinction Level Event at which point the markets will stop.
I think that was a good trade to make. The markets have priced the extended QE in, and multiples are getting extended. Earnings are shitty and going to get worse.
Which means more Yellen bucks to prop it all up again. Bad 'earnings' are good for the market. It means the Fed hasn't printed enough and they'll just double up. After all, they couldn't possibly now say that QE doesn't work, can they?
I agree that "Smellin Yellen" will pump MOAR cash into the (insanity model). The laws of diminishing returns are starting to really show. I won't even go into the inflationary problems that extra monetary injections will cause.
The Fed is already walking a thin line. If they increase QE, they are just as likely to spark a market panic. It is an admission, as you say, that QE hasn't worked. After 4 years of not working, another increase would mean 1) loss of faith in the Fed, and 2) that the economy really does suck.
Treasury Vol is expected to moderate with the FED buying and controlling the ever increasing Stock....Treas VOL will freeze as if ALL is WELL!!!! Look to the GC rates as thee indicator to watch as panic collateral will take over the market.
With the Fed dumpling billions monthly what's risk anymore. Ride the QE until it blows, which may be a few years.
With Yellen and Obama we should see $20 trillion soon. It's print (Yellen) and spend (Obama) until the US dollar blows up.
"With the Fed dumpling billions monthly what's risk anymore. Ride the QE until it blows, which may be a few years.
With Yellen and Obama we should see $20 trillion soon. It's print (Yellen) and spend (Obama) until the US dollar blows up."
And when it blows up, it won't matter whether anyone rode the QE or not. In Zimbabwe everyone became a billionaire in their currency, yet they are still dirt poor.
I think someone has the nod on a tresuries dump.
From my reading of the foreign press, nobody seems to be averse to quitting
the dollar as GRC.Lots of discussion of the mechanics , not the concept.
That would cause a little volatility.
Saudi and the GCC are crucial,but ironically the Iranian 'threat' looks
like its being neutralized, and that would remove any reason to continue the
petro dollar.
Looks like Putin .,and the Chinese are still ten moves ahead , and Obozo is
playing with himself ,or Reggie.
China may not even need to dump the treasuries. It may be good enough for them to wait until the Fed ramps up QE and/or there is another debt ceiling fight and simply announce that they will buy no more treasury securities because the US has surpassed Full Retard. IMO, that would force a ramp in even more QE and shit would spiral out of control, while making China look like a non-agressor that is simply protecting its own interests from an irresponsible and dysfunctional former superpower. China could then quietly start pruchasing US assets, effectively sending those dollars home.
You ever heard the old saying about how it's better just to show the knife? Buying that gold vault is about the smartest thing the Chinese could have done to ensure a smoothe exit from their USTreas position.
"We're here for your daughter Chuck".
OT: Dear Mexican fellows. You got hacked.
http://www.slate.com/blogs/the_slatest/2013/10/20/report_nsa_hacked_into...
Sent from my spYPhone
Even if the bastard gets the bet right... there is still the tax... (essentially) paid back to the same criminal enterprise he is betting against. All roads lead to Rome.
I know it's your blog Tyler but the spin you put on things is many time counterproductive. The info. is awesome and presenting original concepts outside of the script is brilliant.
Let's face it $6.7mm is nothing!!! Ummm, what were the fines that JPM just paid? Come On Man!!! Keyshawn could fuckin' figure this one out (likely not Ditka)...
You are just helping chum the waters and load the short cover barrel again. If there is one thing around here that makes sense, it's the 'vacate' concept. The problem is that WE are all being herded into the trap.
Ooooh, big smart money is back telling you that VIX will go up again. It's manipulated. It's manipulated 'long'. Billions $$$ trade every day...
AnAnonomous, did you get a new handle?
The French Connection was on TV last night. In one scene you could see both of the twin towers being built. You could also see that a person's human rights have not changed in 40+ years.
Oprah with Dr. Phil on Terrorism
Just kill them with comedy & ridicule. Their credibility evaporates.
So, someone is betting on the arrival of Old Yellen Stain.
And, I can only presume the new squabbles in the District of Criminals will merely obfuscate the new FED head's dovish intentions.
Shirley by next year Obama will need trillions more to placate his Free Shiite Army.
My only question is this, will the head of the FED still be called The Chairsatan?
Or will we need a new term more in line with [its] androgynous hermaphroditic looks. (Hey, nobody can claim they didn't see that Adam's apple and a bit of a package poking out from that dress)
How bout The Chairtroglodyke.
Too many syllables. Here's a good starting point> The 25 Most Evil People in History | 25 Most Evil People In History
What is the price of going through all these things twice? zero?
I love people. Defy that.
Kreditanstalt, for this 1st time I had to give you a down arrow; that last sentence sounds like a wild-eyed Amerikan biblethumper (or an East Asian Koran-thumper) wrote it.
The FED is starting to trade the VIX?
I wonder what would they do with all those millions as Fukushima "progresses".
JP Morgan $13 billion settlement must add at least 50 points to S&P 500.
Maybe the timing has nothing to do with the US. Maybe they think Iran will back out of the nuclear talks and Israel opens up a can woop ass (they did have big air force drills last week).
I plan to bet on the VIX going up when it is at 12 before Thanskgiving, then sell right after that. Then buy when the VIX is at 12 again before Christmas and sell right after that, and then bet again in January when the VIX is at 12 and sell mostly before the debt ceiling issue is suddenly resolved around February 7th.
In fact just buying around 12 and selling around 18 is not too bad a of a strategy. Merely adding known events can optimize it.
Of course, this is based mostly on guessing based on past behavior and understanding how the VIX and the whole financial sector is rigged, so beware. Those sneaky riggers could change course at any time if too many people catch on.
What we can't know is whether any politicans will actually go as far as they did with this particular debt ceiling and shutdown showdown. I sold as soon as Bernanke announced no taper, which was an OK decision, but I should have waited a couple of days for the usual bounce from the usual pretense of a debt showdown. I don't feel bad about not knowing how far the shodown went this time becasue we all knew the inevitable result, and such a showdown rarely goes that far. Like I said, those sneaky riggers could change course at any time if too many people catch on.
Long term the Fed will run spy up to 3400 then wam a 50% drop to today's prices or support.....no one will complain