For those Vix traders Out there

Discussion in 'Options' started by heiasafari, Nov 11, 2009.

  1. I know it doesn't say much but there was a huge spread put on this afternoon on Vix dec 20/18 puts... About 70000 contracts on each side, which is double the open interest that was there on the 20.
  2. 1) Excellent! I finally got filled on "that".
    2) Look for "large" changes in open interest in other options to indicate if the trade is being hedged elsewhere. :cool:
  3. where would you look to see if that trade was hedged?

    You dont even know what side was opening and whether its a hedge so any myriad of types of portfolios
  4. 1) ? tell me after you make an effort to find out.
    2) Confirmation of the obvious:
    (a) An increase of open interest would suggest a newly initiated position.
    (b) A "wash" in open interest would suggest somebody offset to somebody else who "wanted in" on the trade.
    (c) A decline in open interest would suggest a "mutual offset" in the contract(s). Both parties to the trade "wanted out".
    3) There. Was that "good enough" for you? :confused:
  5. dmo


    Let's say there's open interest of 1,000 in an option. One day out of nowhere there is huge volume and the open interest jumps to 101,000.

    What does that tell you? There are 100,000 new longs, yes - but there are also 100,000 new shorts. You cannot possibly have the beginning of a clue as to what other positions the longs have, and what other positions the shorts have. You cannot conceivably begin to know why they entered the trade.

    The only thing that might give you a clue is to see what happened to implied volatility. If it jumped by a large amount, then you can be pretty sure the volume was driven by buyers. If it dropped a lot, then the volume was driven by sellers.

    But just the fact that there was large volume and a large increase in open interest tells you nothing. Sad to say, but true.
  6. All this being said, a spread like that makes money if Vix goes up or at least stays above 20, which will happen if the current rally runs out of gas... If this was a portfolio hedge, it makes more sense for the initiator of that spread to be bullish on stock and therefore took the credit side (0,20$ incidentally). Otherwise I cannot believe, after the 7 month rally, that the initiator would have the balls to have such a large short portfolio that would require this kind of hedge, I mean those kind of volumes do attract attention...
  7. 1) I am focusing more on what I can know.
    2) You seem to be focusing more on what can't be known. That's fine.
    3) I like making "bullet points". :cool:
  8. DMO,
    The MM is obligated to take the other side--as long as the ask was paid. So,.. let us try again...
  9. dmo


    When you see a transaction take place, what makes you think you know if a MM was one of the parties? The buyer might have been Sam the Sham in Kalamazam and the seller might have been Sue in Timbuktu.

    Besides, a MM is obligated to take 50 contracts. What possible relevance does that have to what I said about an open interest increase of 100,000?

  10. What DMO and I were saying is you're focusing on what you think you know. DMO and I pointed out you cant possibly know much of value from looking at the volume and OI.

    You could see large changes in OI in all kinds of options but concluding they had something to do with that trade is foolish.
    Example… Stock XYZ is a oil driller service company… the stock trades at 14 dollars and has roughly 5000 contracts of OI in the front month. One day you see the 20/22 ½ call spread trade 10,000 times on the tape? What have you learned? Did the MM’s participate or was the trade just crossed and two off floor firms take a side. Were there 10 firms on one side and only one on the other? Which side initiated the trade and did they buy to open or sell it top open? Was that trade shopped all over the street to find the counter party or were firms vying to take the other side? Did both parties agree to trade the stock when at an agreed price when they worked out the spread price before crossing it on the floor?

    15 minutes later you 2000 calls trade in ABC which is also a driller / service company. Was that trade related to the other? Did the MM’s participate on that trade or was it crossed, did the party who initiated that trade buy to open or sell to open what if any underlying trade was associated with it.

    The bottom line is you have no way of knowing anything about a single options trade no matter what the size and you have no way of knowing what if anything was done against it.

    You’re focusing on what you think you know but in the end you cant know anything about the trade you just believe your opinion is fact.
    #10     Nov 12, 2009