Tuesday, October 28, 2008

SPX Put Bomb Update

Last Wednesday, in SPX Options Carpet Bomb Pushes VIX SOQ to 63.04 (!) I reported on a series of transactions involving some 285,000+ SPX put contracts that one party apparently purchased at the open. At the time, my angle on these transactions focused on the ability of the purchaser to artificially create a sharp jump in the ‘special opening quotation’ in the VIX that is used to settle VIX futures and options.

As it turns out, whoever bought those puts did not need to make any money on their VIX positions. If they held on to those SPX puts for just three days, their positions gained 96% and if they held them through yesterday’s close they would be up some 124%. That is a gain of over $180 million according to my calculations. Not bad for less than a week of work…

4 comments:

Marc said...

Doesn't this beg the question...

Somebody knew that there would be massive hedge fund selling in the following days or a lucky guess?

Anonymous said...

Yes, I did pretty well on that trade.




Kidding!

Chris said...

Hope you sold at the open today!

Anonymous said...

there's a better answer to this question, and its not that i knew the market was going down or that i was trying to manipulate the VIX print.

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