Unusual Options Activity January 16, 2018


After reaching all time highs early in the trading session, the S&P 500, Nasdaq 100, and Dow Jones Industrial Average index all retreated from record levels during trading on Tuesday, January 16th 2018. Many market participants were scratching their heads as to why there has not been a down day in the markets since the start of the 2018.

However, a a strong rally and decent sell-off in stocks wasn’t the only weird thing that occurred on Tuesday. There were some pretty unusual options trades in volatility. Let’s have a look:

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A staggering 137,500 February 14 2018 $19 VIX calls were purchased today. The trade occurred in two big blocks, with the first block of 50,000 contracts trading for $0.36 at 10:50 AM EST. Shortly thereafter, a second massive block of 87,500 was purchased for $0.40.

All together, this trade cost $5,225,000 in option premium. These VIX calls are set to expire in 27 calendar days. If the VIX is not above 19.38 in 27 calendar days, all 137,500 call options will expire worthless. This is a huge bet on an increase in volatility.

1/16/18 12:58 14 FEB 18 19 C 87,500 0.40 CBOE
1/16/18 10:50 14 FEB 18 19 C 50,000 0.36 CBOE

Who Bets $5 Million on Volatility?

Unfortunately, there’s no way to confirm who purchased the 137,500 VIX call options. Betting $5,225,000 that will only pay off if there is a significant increase in volatility indicates this trade is likely a hedge.

More likely than not, this is a portfolio manager or large institution that wants to protect their long stock portfolio from a rise in volatility, or beta. It could very well be a $5 million hedge for a $5 billion portfolio.

Is it 50 Cent the Options Trader?

50 Cent, not to be confused with Curtis Jackson, the musical rapping legend, was the moniker given to the mysterious trader who surfaced multiple times last year in the volatility market. 50 Cent would buy 50,000 VIX call options for $0.50 each for days on end. Regardless of strike price, 50 Cent would only buy the options that were trading for $0.50, hence the name “50 cents.” After all was said and done, 50 Cent spend nearly $100 million buying VIX calls.

We don’t know if 50 Cent has changed to favoring 40 cent options, but spending $5,225,000 on VIX call options that expire in just 27 days is arguably a pretty risky trade – even if it’s a hedge.

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