Mysterious trader is making a huge bet on VIX

A multimillion dollar bet on a surge in market volatility is gaining notice in the options market and appears on track to become the largest trade this year in the CBOE volatility index.

That's according to Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors.

In a note to clients Tuesday, Chintawongvanich pointed out that the trade initiated in July is betting that the CBOE's VIX will rise meaningfully in the short term. The index has traded around historically low levels for much of this year.

Judging by the way the options trade was executed, the strategist pointed out, the trader is expecting the VIX (just below 10 in Thursday trading) to rise to the high teens or mid-20s, though the position would begin to lose money if VIX futures rise too far, too fast.

Chintawongvanich said the trade may very well be a hedge against a broader stock-heavy portfolio, rather than a pure bet that the VIX rockets higher.

"I think it's a good hedge. I think the person who is doing this isn't necessarily just betting outright that volatility is going to go up. I think they probably own a lot of stocks, a lot of things that would go down if North Korea risk escalates, or maybe something else, tech stocks pull back," he said. "The point is, they probably need protection, and they think it's a good place to get in there doing that, with the VIX being at extremely low levels."

Source: Bloomberg Pro Terminal
Trader I. Ivanov

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