The VIX March 17-19 Put Spread traded 8,000 times, versus March VIX futures at 19.30 on a 25 delta. In English? The buyer of the spread bought the March futures as a package with the spread, basically once-per-four put spreads. He’s betting on either a pop in VIX, or a decline that stays near or above 17 between now and when the March VIX futures expire. Remember that VIX March expiration is two weeks from this Wednesday, and that the March he traded carries a modest premium to the “spot” VIX that sits in the mid 18′s now.
The CBOE also tweets out a block of 20,000 VIX March 24 Calls going up at 52.5 cents. Cheap dollar portfolio insurance? Pure speculation on a secondnd wave down in the market and ensuing VIX panic? No way to know. I would say from personal experience that these calls seem intuitively fat. Again, March futures sit at 19.30 now, and there’s only two-plus weeks to expiration. I would also say to avoid naked shorting a call like this in VIX like you would avoid stock tips from Lenny Dykstra. These are pure lightning in a bottle. VIX might drift and lull you to sleep, but then one day an oil well in the Middle East goes up in flames and all of a sudden VIX blips to the mid 20′s.
Before you start thinking “smart money” on the buy side, keep in mind that VIX options run on call speculation. The lion’s share of open interest in March sits in the 21 and 22.5 lines. So while I wouldn’t sell them simply because they’re impossible to manage, I also wouldn’t get carried away on the implications of cheap VIX call buying.