In early May, when the first of the Hilsenrath "taper" leaks hit, we made a prediction [6]that the correct time frame for the actual taper announcement by the Fed would be September. As a reminder back then this was a heretical suggestion with prevailing consensus expecting a 2014 taper or a December 2013 move at the earliest. To wit:
Regarding bets when the unwind begins, a look at the change in the VIX forward curves gives us some idea:
[7]
If correct, put the date September 17-18 [8]in your calendars.
Fast forward to today, when the September FOMC is the consensus date for a taper announcement.
However, what is still debated is whether or not the taper is actually "priced in" to risk assets: some say this is what the bond swoon of June was for, even though equities have largely digested the bond move 100 bps wider, and are just a fraction off their all time highs.
Well, a few hours ago someone just decided that not only is the taper not priced in, but that there will be a substantial shock surrounding the September VIX bucket. And they put their money where their mouth is.
This is what the VIX curve looks like currently: the September VIX is roughly 15.
[9]
And here is the block trade that was executed earlier today for over 30,000 contracts of September 28 strike VIX calls, which expire the same day as the FOMC announcement.
[10]
Unlike the other big block trades in September VIX which was a 14/15 pair trade, the 28 Call seems naked and is thus a one-way directional bet on a spike in vol.
So does someone know something, or just has a lot of cash burning a hole in their pocket and is not convinced that the centrally-planned market's chief risk manager (that would be Ben Bernanke of course) will hold it all together following whatever is announced on September 18?
And who was on the other side of the block trade (i.e., seller)?
Many questions. As for at least one answer, we will know for sure in precisely 6 weeks.