Someone spent $6 million on deep in-the-money puts on the VIX Index. The trade happened Tuesday. The Fed rate decision looms. This is the biggest trade of the day in VIX options.
Deep in-the-money puts are what you buy when you think volatility will stay low or drop. The VIX measures fear. It spikes when markets panic. A Fed rate decision typically makes the VIX move. Sometimes up. Sometimes down. But it moves.
This trader bet $6 million that it won't move much. Or that it will fall. Right before an event that historically causes movement. The logic resembles buying flood insurance during a drought.
The options pit called it a head scratcher. That's trader speak for "we have no f*cking clue what this person knows that we don't." Maybe they know nothing. Maybe they're hedging something so complex it requires three Bloomberg terminals to explain. Maybe they fat-fingered the order and their compliance department is currently updating résumés.
Retail traders saw this headline and immediately opened their Robinhood apps to copy the trade with $143 in buying power. They will learn what deep in-the-money means when the position expires worthless despite being "in the money" because they bought it at a $5.87 premium on a $6 intrinsic value.
The Fed announces Wednesday. The VIX will do something. The $6 million will become $8 million or $2 million. Someone will write a follow-up article explaining why it was obvious in hindsight. None of this information will help you make money.
Imagine lighting $6 million on fire but the fire only burns if Jerome Powell uses the word "patient" fewer than three times.
Photo by Markus Spiske on Unsplash
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