Trader Bets Big on VIX Spike Hours Before Blowout Jobs Report

At least one trader correctly anticipated the surprising jump in US payrolls Friday.

(Bloomberg) — At least one trader correctly anticipated the surprising jump in US payrolls Friday.

In the hours before the widely anticipated US jobs report, a trader or traders bought more than 50,000 call options on the Cboe Volatility Index — also known as the VIX or the stock market’s “fear gauge” — betting that a strong report would push stocks lower and send investors looking for protection. The one trade amounted to almost 6% of the entire day’s average volume for all options and attracted attention as unusually big for overnight session.


The wager hasn’t really paid off yet, with the 25 calls expiring Oct. 18 only up a few cents each as the VIX rose to 19.39 but held within this week’s range. The index hasn’t been above that 25 level since the regional banking crisis in March. 

“Looks like a play on blowout job numbers rippling into volatility markets,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. “They got the job numbers, but didn’t get the volatility move yet. We believe they were bought.”

Read more: Fed Will Lean Toward Another Rate Hike After Blowout Payrolls

On the flipside, the trade doesn’t need to be profitable for the trader to make money. As these call options are now more expensive than where they were bought, a trader can “sell them or ‘spread them’ or something to that effect, depending on what they want to have going forward,” said Rocky Fishman, founder of derivatives analytical firm Asym 500.

The bet would pay off the most if concern that the Federal Reserve will keep interest rates higher for longer weighs on equities ahead of the next central bank meeting. A strong jobs report makes it more likely that the Fed will be slower to lower rates, keeping interest costs higher for companies and weighing on profits.

“All end clients are buying VIX calls to hedge the mess in rates,” said Michael Sandberg, equity derivatives sales trader at United First Partners. “Rates are up because of strong economy not inflation like in October. That’s the big difference.”

–With assistance from Thyagaraju Adinarayan.

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