Surge In VIX Volume Reflects Huge "Interest In Owning Market Crash Protection"

"I'm not sure if it’s the biggest trade ever, but it's certainly one of them," noted Jamie Tyrrell, a VIX specialist on the CBOE floor, as Bloomberg reports almost $100 million worth of options pegged to the volatility of US equities were traded in a split second at 1216ET today. "Someone is interested in owning a lot of protection," Tyrrell added as just over 1 million contracts were traded, all told, about 54% of the total amount of index options that traded at the CBOE all day Friday. While for every buyer of VIX Calls there is a buyer, the notable push higher in volatility after this trade suggests the trades had characteristics of someone hedging stocks.

 

The options trade were spread across 4 strikes and 2 maturities...

 

As Bloomberg adds,

about 40 different trades went off at 12:16:04 p.m., encompassing contracts that gain in value should the Chicago Board Options Exchange Volatility Index rise over the next few months, according to options data compiled by Bloomberg. The four biggest were each more than 130,000 contracts.

 

While divining the motive of a single trader who may be operating in more than one market is impossible, buying a call on the VIX is a bet the equity market turbulence will rise, which usually happens when stocks fall. To Jamie Tyrrell, a VIX specialist on the CBOE floor, the trades had characteristics of someone hedging stocks.

For example the July 23 Strike Calls...

 

And left VIX (and VIX Futures) surging after the options trade...

 

As Bloomberg concludes, expectations of higher volatility have been creeping back into the market through options on the VIX. Traders owned about 5 million calls as of Friday, the most since November and more than double the open interest in January. They held 2.6 calls for every put, around the highest ratio since October.

And The Bloomberg Put-Call Ratio Composite is the lowest (most Calls over puts) since Dec 2010.

 

Charts:Bloomberg