There definitely is something to the "follow the money" mantra. John Poindexter got excoriated for wanting to utilize that in relation to terrorism but "prediction markets" can certainly provide some legitimate information upon which one can decide to act. Something âVery Badâ Will Happen In The Next 60 Days: A âMysteriousâ Trader Is Betting On It! Wednesday, February 6, 2013 10:06 Stocks have been rallying relentlessly to post-crisis highs. Meanwhile, the volatility index (aka the VIX, aka the "fear index") is near historic lows. But according to UBS's Art Cashin, some options trader has made an enormous $11.25 million bet that the VIX will explode higher very soon. And a rally in the VIX is usually accompanied by a drop in the stock markets. From this morning's Cashin's Comments (emphasis ours): A Very Big Bet In A Somewhat Unlikely Instrument â My friend, Jim Brown, the ever-alert consummate professional over at Option Investor pointed us to a rather unusual trade. Here's what he wrote in last night's edition of his valuable newsletter: In past years I have reported on trades that were so large it appeared someone had inside knowledge of a pending event. Sometimes those were massive put positions on the S&P. A new trade just appeared that suggests there will be a market event in the near future. Last week somebody put on a call spread on the VIX using the April 20 and 25 puts. They bought 150,000 contracts for a net of $75 per contract. That is an $11,250,000 bet that the VIX will move over 20 over the next 60 days. You would have to be VERY confident in your outlook to risk $11 million on a directional position with the VIX at five year lows and the markets trying to break out to new highs. Jim then goes on to list some of the scheduled events and deadlines visible over the next 60 days (mostly in Washington). When you add in the broad variety of geo-political possibilities, it's a decent reason to stay extra alert. Hopefully, this person is wrong. Source: http://www.businessinsider.com/art-cashin-on-big-vix-bet-2013-2
What about the opinion of those who SOLD the contracts? Could it be "Sucker!" Or might it be some sort of unusual hedge? BusinessInsider is mostly sensationalist bullshit. I look at it less often than I read ET.
They put on a Call Spread using Puts??? Did they mean to say "Opened a Bull Spread using Puts?", IOW an Apr 20/25 Bull Put Credit spread (Vert)? Don't see very much open interest in the Apr 20/25 puts, and you would get about a 4pt credit now. Looks like they meant a Bull Call (debit) spread using the Apr 20/25 Calls...at least there is some chunky OI in the Apr 20/25 Calls and it would cost about 0.60.
Well, that confirms that. Never ever listen to anything I say. And just for good measure. Take this And this And this
11MM is not a lot of money for a long short fund hedging a billion dollar portfolio. Don't assume this is some speculator who bet the farm on this.