“…An options trader or traders bought call spreads on the Cboe Volatility Index — or VIX — expiring in September, spending upwards of $9 million to protect against a spike in the gauge of S&P 500 volatility past 22 from its current level of just over 15. A jump to that level would bring the VIX back to where it was Aug. 9, when the market was recovering from a sharp selloff. There are reasons for investors to be wary of stocks retreating. September has historically been weak for the S&P 500, and this year, with the US presidential election around the corner, the month could be especially fraught. A slew of economic data ahead of the Federal Reserve’s interest-rate decision on Sept. 18 may shift expectations on how much, and how fast, the central bank will ease monetary policy. “With short-term implied volatility down meaningfully from those early August peak levels, the investor could be looking to the spread as a low-cost hedge against another meaningful spike in near-term volatility, with next week’s nonfarm payrolls report and the September 18 Fed meeting serving as potential catalysts during a period that has historically seen weak seasonal returns,” said Christopher Jacobson, co-head of derivative strategy at Susquehanna International Group. Some 350,000 contracts of VIX 22/30 call spreads expiring on Sept. 18 changed hands for about $0.25 each, some in small trades, others in big blocks. The trade will be profitable if the VIX Index jumps above 22, but gains will be capped at a reading of 30. There are plenty of events ahead of the Fed meeting to spook investors. The Bank of Canada and the European Central Bank will make rate decisions earlier in the month. Closer to home, the US presidential debate may sway market sentiment, while US consumer inflation and employment reports will offer the Fed further look at the health of the US economy before its decision. The trade is likely “hedging the slew of events the next month including payrolls, the first debate, CPI and a few central bank meetings,” said Daniel Kirsch, head of options at Piper Sandler…” https://finance.yahoo.com/news/options-trader-spends-9-million-192707374.html
You read this I see a few possible reasons why. 1-The spread is a low risk with a low chance of success. The size of the trade is huge to us, but the manager could be running $500mm and this is a small trade. 2- The manager has a large, long portfolio and required a hedge to hold it. We will never know. Not every bear position is one the manager hopes works. There is a member here that shared with me he is often carrying a large, long bias. He often buys OTM SPX puts as a hedge. He hopes they all expire every time.
VIX is just the OEX. Rise to 22 but capped at 30 is a "window". Yes, low probability of success. Portfolio "insurance". Personally, I use the 14 day average true range on the S&P 500. Still market cap weighted but broader than the OEX. It's volatility has peaked. September has a propensity for being volatile and bearish but, going into the month, the number of new 52 week lows is just 23. Bullish. Toss in an election year and probable lower short end of the yield curve. Again, bullish.
spread is a hedging trade. If they are betting on spike, one way 50 cents up or long vix futures are more appropriate.
Can't see 18sept exp, but the 17sept 22/30 is at 0.61mid now... About 12mil in gain Probably a greatly timed hedge right now as the market didn't really crumble so far.
Fantasy football: Spread has a max gain of 271mil, 7.75$ max gain x350k contracts (x100) Let's imagine and guess that they want to hedge for a 50% crash SPX, I really don't know what a fund would aim to hedge... A portfolio of 500mil? Spx down 2%... Would be about 10mil-11mil
An options trader or traders bought call spreads on the Cboe Volatility Index AND!!! An options trader or traders sold call spreads on the Cboe Volatility Index
you're forgetting the all important bid/ask spread. I was trying to get out of a 1x2 qqq position not entirely successful