The recent volatility bet of the mysterious trader has left everyone in an awe. The wager could fruit into a straight $260 million. But what this bet or wager is all about? Basically, the trader bets on the market volatility of the VIX. In this write up we discuss the trend of betting on the market volatility and the story we are going to follow is one the recent that set a new trend in volatility betting. Basically, a trader, bet on the VXI was known as the fear gauge of the stock market. The VXI is going low for quite some period. However, there comes one person in front of the stand positive about the market.
The volatility aspirant initially anticipates the surge of the volatility index to happen in December. However, now he is extending the bet until January. The rollover possesses the potential to pay back 260 million and as the trader lost only a meager amount and thus allows him to continue with the wager.
If taking into consideration the VIX capacity to trade, then it can clearly be seen it on a record low of all time in 2017. The year 2017 is special in term of volatility trade. Although the VXI remains at 7.7% still the traders got themselves involved in some short volatility trade. However, the political forefront has brought the volatility index to 26% by giving it a kick start with an investigation regarding the connection of white house with Russia.
However, let get ourselves back to the trade and consider certain points.
Setting a strike price at 12 the trader sold almost 260000 VXI puts for funding the deal. The proceeds of the sale are then utilized to buy a VIX1x2 call spread. The overall deal involves the purchase of 260,000 calls at a strike price of 15 and also the sale of 520,000 calls at the strike price of 25.
Usually, when we anticipate the slight rise in the backed asset we prefer bullish call spreads. In this, the traders tend to buy the call option at the specific strike price. And then sell the same at a higher rate.
If everything goes well, the VXI remains below 25 the trader will bag $260 million. However, if the strike price goes higher than 35 the investor is going to lose as the person using a call spread.
In order to further understand the deal here is few explanations. First of all the investors anticipate the low volatility scene is not going to last.
Furthermore, it is also quite possible that investor bets on something that is going the time of the bet like the FED meetings. Moreover, there is almost 96% possibility that the Central Bank is going to enhance the benchmark.
Well, here the point is our mysterious investor is not the only one to flag the wager, there are many out there who are betting their fortune. Now it’s time to sit and wait until January to watch the whole deal to be disclosed.