It doesn't remove user and developer pain points the way iOS 3 did with cut/copy/paste or iOS 4 did with multitasking. Even a slight increase in the VIX could cause those investors holding volatility short to close their positions, which could push the gauge further in the mystery trader's favor.In that regard, iOS 6 is nowhere near as audacious as iOS 2, which brought the App Store, or iOS 5, which cut the iTunes cord, took us to the iCloud, and brought Siri along for the ride. The wager flies in the face of one of the market's most popular - and crowded - trades: shorting volatility. The central bank is expected to start unwinding its massive balance sheet by year-end. The trade's October expiration will capture two Federal Reserve meetings, as well as the deadline for the government's debt-ceiling decision.
It's also possible the investor is betting on volatility around some key upcoming events. While it seems like it could stretch on forever, even the longest stretches of subdued price swings have eventually given way to fluctuations. The first is that the trader decided the prolonged low-volatility environment would end in the next three months. There are a couple of potential explanations for the trade. All data is from Bloomberg and was reviewed by a person familiar with the trade.For context, VIX October futures are trading at 13.6, while the spot index closed at 9.62 on Thursday.If it increased beyond 35.2, the investor would start to lose money since they used a call spread, even though they got the direction of the trade correct. It is possible for the VIX to spike too much.
In a perfect scenario, where the VIX hits but doesn't exceed 25 before October expiration, the trader would see a whopping $262 million payout.Traders buy call options at a specific strike price while selling the same number of calls of the same asset and expiration date at a higher strike. For reference, bullish call spreads are used when a moderate rise in the underlying asset is expected.The trader then used those proceeds to buy a VIX 1x2 call spread, which involves buying 262,000 October contracts with a strike price of 15 and selling 524,000 October contracts with a strike price of 25.To fund it, the investor sold 262,000 VIX puts expiring in October, with a strike price of 12.Account icon An icon in the shape of a person's head and shoulders.
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