Reading the CBOE exchange tape, one investor appears to have paid 63-cents for 20,000 June expiration call options with a 16.0 strike price while at the same time selling the same volume of 20.0 strike calls for 26-cents expiring in the same contract month. Floor sources say the buyer has interest to pay the net 37-cents for more of the same combination, but the bearish tone to Tuesday’s trading is pushing the spread wider.
The CBOE Vix index is higher by almost 2.0% at 12.66 although remains relatively low compared to its rollercoaster ride seen during the financial crisis. Indeed the 20.0 strike for the Vix is a significant watershed that would require a radical change of heart among investors before volatility benchmarks could break to the upside.
Such a move would perhaps take a 10%+ global market correction and a lurch higher in geopolitical risk alongside unrequited attention of an economic slowdown. As accustomed as they are to buying the dip, right now, such a combination hardly seems to be at the fore of investors’ minds. And so using that level to sell against is currently seen as helping offset the cost of lower strike strategies aimed at capturing a still decent and prolonged jump in volatility as today’s example shows.
CBOE Vix index still low even over the one-year horizon.