An institutional investor executed a $6 million trade in deep in-the-money put options on the Cboe VIX index. The transaction occurred on Tuesday, one day before the Federal Reserve's FOMC meeting scheduled for September 16.
Market participants currently estimate an 80–90% probability of a 25-basis-point interest rate hike. The VIX index, which tracks expected 30-day volatility for the S&P 500, traded in a range of 14–18 in the sessions preceding the announcement.
Data from SpotGamma indicates that multiple large VIX options trades, ranging from $3 million to $12 million, have been recorded recently. While many trades involved call options to hedge against volatility, this specific put purchase suggests a bet on market stabilization.
Deep in-the-money puts function similarly to a direct short position on the underlying index and are less sensitive to time decay. The buyer appears to be positioning for a reduction in uncertainty following the Fed announcement, a phenomenon often referred to as vol crush.
