The Big Short: Wall Street's Fear Gauge Received Bets On 1100% VIX Spike
Equity prices have been rising steadily so far in 2023, with little volatility, but a few bets placed last Thursday on Wall Street's Fear Gauge hint at a risky move that would equal Michael Burry's well-known "Big Short."
The $CBOE Volatility S&P 500 Index (.VIX.US)$, trading merely above $13 last Friday, received bets with the highest strike price in recent weeks. The bets hinge on the index hitting 180 by February 2024, at the end of last week's trading sessions. Additionally, 20,000 VIX option contracts expiring in December have been placed with the same strike price over the past few weeks.
It is impossible to stress what an abomination this trade is. The VIX index hasn't even reached 100 since it first began in 1993. The Great Financial Crisis at the end of 2008 saw it reach a peak of 89.53, which is only half of the value on which the recent trades are based.
Large VIX bets often trigger market concerns. The "50 Cent" trader, who made a splash in the options market years ago, was known in the past to position themselves to make money off of market volatility by way of consistently buying VIX Index options that usually cost about 50 cents.
Source: Bloomberg
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D Blaine : Shades of Spitnagel and Taleb. Betting on dramatic dramatic moves with cheap options.