Stocks have been rallying relentlessly to post-crisis highs.
Meanwhile, the volatility index (aka the VIX, aka the "fear index") is near historic lows.
But according to UBS's Art Cashin, some options trader has made an enormous $11.25 million bet that the VIX will explode higher very soon.
And a rally in the VIX is usually accompanied by a drop in the stock markets.
From this morning's Cashin's Comments (emphasis ours):
A Very Big Bet In A Somewhat Unlikely Instrument – My friend, Jim Brown, the ever-alert consummate professional over at Option Investor pointed us to a rather unusual trade. Here's what he wrote in last night's edition of his valuable newsletter:
In past years I have reported on trades that were so large it appeared someone had inside knowledge of a pending event. Sometimes those were massive put positions on the S&P. A new trade just appeared that suggests there will be a market event in the near future. Last week somebody put on a call spread on the VIX using the April 20 and 25 puts. They bought 150,000 contracts for a net of $75 per contract. That is an $11,250,000 bet that the VIX will move over 20 over the next 60 days. You would have to be VERY confident in your outlook to risk $11 million on a directional position with the VIX at five year lows and the markets trying to break out to new highs.
Read more: http://www.businessinsider.com/art-cashin-on-big-vix-bet-2013-2#ixzz2KDnLEw90
5 year chart of the Vix to put it in context when a sudden 20+ point move in the Vix has happened in the past.
It has only happened 3 times in the last 5 years.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Index&symb=vix&x=38&y=13&time=12&startdate=1%2F4%2F1999&enddate=2%2F7%2F2013&freq=1&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=8
5 year Vix chart with stock market (S&P 500) overlaid
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Index&symb=vix&time=12&startdate=1%2F4%2F1999&enddate=2%2F7%2F2013&freq=1&compidx=SP500&comptemptext=&comp=none&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&x=29&y=16&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=12
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