The “Ultimate” Tail Trade? (Preview)

By Lawrence G. McMillan

Yesterday (October 6th), on the CBOE, someone bought 50,000 $VIX Mar (22nd of 2023) 150 calls for 0.19. So, that’s 50,000 contracts. Strike is 150 for $VIX (or technically, for the March (2023) $VIX futures. And the expiration date is roughly six months from now.

What does this imply, if anything? First of all, it should be understood that $VIX has only traded at that level once – during the Crash of 1987. In reality, $VIX didn’t exist at that time, so $VIX has never really traded at 150. But when $VIX was created in 1993, the CBOE backdated the data and estimated that $VIX traded above 150 during the Crash. Of course, pricing data was difficult to discern at that time, since many option markets were extremely wide due to the existence of a crashing market. But, let’s just say $VIX did trade there. Now someone expects it will do so again? Wow.

Could this be a hedge? I can’t really imagine what it would be a hedge against. I think it is far more likely...

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