IB Options Brief: 1/100 of the Dow Jones Industrial Average – DJX

Options Unusual Activity

IB Options Brief: 1/100 of the Dow Jones Industrial Average - DJX

Posted May 3rd, 2012 by Caitlin Duffy in Unusual Activity

Vega Trade On DJX Sees Choppy Markets On The Horizon

DJX ñ 1/100 of the Dow Jones Industrial Average
A massive vega trade initiated in the DJX today sent off ripples across major indices and single-stock names as market makers scrambled to hedge their sales of volatility that occurred due to the trade. The purchase of 30,000 Dec. 2014 $135 calls on the DJX, delta-hedged by a June 2014 $132 collar, is a pure volatility play that makes money if markets grow increasingly choppy going forward.

Signs Europeís crises may be coming to the fore once again could play a role in rising market volatility, which U.S. equities have largely been able to cast aside during the first quarter given positive domestic economic data and strong corporate earnings.

The VIX has remained below 25 all year, passing much of its time just above or below the 17-level. For an investor anticipating rough seas up ahead, multi-year lows for the fear index provide an opportunity to lock in vega while itís relatively cheap rather than wait for Nostradamusí Armageddon, or more likely, continued turmoil across the pond, to blow volatility through the roof.

--------------------------------------------------------------------------------------

Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained from theuse of this information. Past performance is not necessarily indicativeof future results.

This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this material arenot suitable for all investors. Any opinions expressed herein are givenin good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take into accountyour particular investment objectives, financial situations or needsand is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particular circumstancesand, as necessary, seek professional advice.