Trader Reaps $1.7 Million Payday on Wednesday’s Volatility Buys

(Bloomberg) -- The trader who loaded up Wednesday on protection against U.S. equity tumult couldn’t have timed it better.

The Cboe Volatility Index jumped as much as 1.5 points to 13.5 on Thursday as the S&P 500 Index slumped 0.7% at one point in the wake of a European Central Bank decision that failed to live up to investors’ dovish expectations.

Wednesday’s buyer proceeded to take profits on much of the trade, selling roughly 150,000 August VIX call contracts with a strike price of 20 just before 2 p.m. in New York. Each contract represents 100 lots.

Based on the average price of the options purchased -- a little less than 34 cents apiece -- relative to the selling price of 45 cents, it’s a one-day gain of $1.7 million for the trade. The amount of calls bought Wednesday, however, suggests some of the position remains open or that there’s another party involved.

Even amid this position squaring, volatility buyers were still out in force again Thursday. Notably, two trades of nearly 50,000 contracts in the September VIX 24 calls took place near 10:30 a.m., with total call volumes running 50% above the 20-day average as of 2:30 p.m. in New York.

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Rita Nazareth

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