Things are getting interesting.
The trader purchased 40,000 April calls on the VIX with a strike price of 22 for $1.28 each, according to Trade Alert LLC. The bullish volatility bet was the biggest single block of options to change hands on U.S. exchanges, the research firm said. The VIX rose 0.8 percent to 15.54 today.
Investors are positioning for a possible jump in volatility with stocks poised for the biggest annual advance since 2003 after the Federal Reserve refrained from reducing monthly bond purchases. The central bank may begin reducing its $85 billion of monthly bond purchases at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, up from 17 percent in a Nov. 8 poll.
“Customers continue to hedge their stock-market risk by buying upside calls in the VIX,” Mark Caffray, who brokers contracts on the index for clients at Chicago-based PTR Inc., said in an interview. “There have been very aggressive customer buyers of VIX calls in March 23, April 24, and today April 22 call strikes,” he said. “We do not expect this activity to subside until a Fed decision on tapering.”
An explanation from ZH which also suits this trade; “everyone remembers the summer very vividly, the last thing anyone wants is to be the last Kool-aid drinker at the centrally-planned party.”