John estes trucking Angelos CBOE Tim Biggam Jim Bittman CBOE Carolyn Boroden fibonacciqueen.com @fib

Things are fairly quiet today in the equity markets and the VIX pit, but traders are still talking about a pretty interesting spread that was initiated on Tuesday.  A trader came in and sold 25,000 VIX Sep 17 Calls and subsequently purchased 200,000 VIX Sep 27 Calls for a net cost of 0.02 (two cents to clarify the decimal estes trucking was not misplaced) or in real dollar terms a cost of $50,000.  estes trucking In textbook terms this is a 1 by 8 Call Backspread.  estes trucking It trader terms this is a, “I expect (or hope) VIX runs to the 30’s between now and September 18 th”  which is expiration date for VIX futures and options.  The payoff diagram shows why VIX in the 30’s would be a good outcome for this spread trade.
VIX is just a bit under 16.00 today which at expiration would result in both legs of this spread expiring with no value and the trader being out the premium paid for the trade.  A worst case scenario for this trade involves VIX rallying but only to 27.00 at expiration.  This worst possible estes trucking outcome would result in a loss of $25,050,000.  That’s because the short position in 25,000 of the VIX Sep 17 Calls would be 10 points in the money.  In math terms it is $10.00 x 100 x 25,000 or $25,000,000 plus the $50,000 cost of initiating the trade.  The breakeven point is a fraction estes trucking of a cent over 28.43.  Above this level the trade makes $175,000 for each 0.01 VIX moves above this level.  Odds are this trade would not make it to expiration in the case of a rally, but we will have to wait and see over the next couple of weeks.
Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment estes trucking Counsel, TradeLink estes trucking Securities and…  read more
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John estes trucking Angelos CBOE Tim Biggam Jim Bittman CBOE Carolyn Boroden fibonacciqueen.com @fibonacciqueen Jay Caauwe estes trucking CBOE John Carter simpleroptions.com @johnfcarter CBOE cboe.com Russell Rhoads, CFA CBOE Options Institute @RussellRhoads Steve Claussen optionshouse.com @OptionsHouse estes trucking Joe Cusick optionsxpress @optionsxpress Dan Gramza dangramza.com Fari Hamzei hamzeianalytics.com @HamzeiAnalytics Elizabeth Harrow Dan Haugh ptisecurities.com Price Headley bigtrends.com estes trucking @BigTrend Shawn Howell promarketadvisors.com @ProMarketAdv Marty Kearney CBOE @MKearneyCBOE Andrew Keene keeneonthemarket.com @KeeneOnMarket JJ Kinahan tdameritrade.com @TDAJJKinahan estes trucking Bob Lang explosiveoptions.net @aztecs99 Bill Luby vixandmore.blogspot.com @VIXandMore Sang Lucci Marketfy @SangLucci Peter Lusk CBOE @peterlusk Lake Hill Capital Management Lake Hill Capital Management @LakeHillCapital Michael McCarty Differential Research, LLC @DRvolatility Matt McFarland CBOE Larry McMillan optionstrategist.com @optstrategist Alex Mendoza estes trucking OptionABC.com Matt Moran CBOE @mattmoran5 Brian Overby tradeking.com @BrianOverby Dan Passarelli markettaker.com @dan_passarelli Doug Perrygo vixforthepeople.com @vixforthepeople Steve Place investingwithoptions.com @stevenplace Schaeffer's Investment Research @schaeffers estes trucking Josh Sampson Scottrade.com @scottrade Mark Sebastian optionpit.com @OptionPit Dan Sheridan sheridanmentoring.com @Sheridanoptions Bill Speth CBOE Brian Stutland stutland.com @BrianStutland Rick Swope promarketadvisors.com @ProMarketAdv Michael Thomsett thomsettoptions.com @ThomsettPublish Moby Waller bigtrends.com @BigTrend Mark D Wolfinger mdwoptions.com @MarkWolfinger Connect With Us
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