Large Option Trade in Volatility, Why You Should be Paying Attention

 Large Option Trade in Volatility, Why You Should be Paying Attention | Benzinga Benzinga Benzinga Pro Marketfy Facebook Twitter LinkedIn Google+ RSS Free Streaming News Membership is FreeWhat are you waiting for? Sign up now! Username: Username available!Username taken! Email: Email available!Email taken! Password: Leave blank: already have an account?User LoginI bet you can't wait to get back in here... Username or email: Password: need an account?Forgot password? Contribute Login Sign up Benzinga - Feed Your Mind. HomeBest of BenzingaCareersAboutContact UsPartnersNewsEarningsGuidanceDividendsM&ABuybacksLegalManagementRetail SalesOfferingsIPOsInsider TradesBiotech/FDAMarketsPre-MarketAfter HoursMoversForexCommoditiesOptionsBondsFuturesGlobal EconomicsPreviewsReviewsRatingsAnalyst ColorDowngradesUpgradesInitiationsPrice TargetIdeasLong IdeasShort IdeasTechnicalsFrom The PressJim CramerRumorsETFsTechStart-UpsSmall-CapTrading Strategies & Education Market Overview TickersArticlesKeywordsSearch by keyword...googlecse Large Option Trade in Volatility, Why You Should be Paying Attention BehindWallStreet.com, BehindWallStreet December 13, 2013 4:05 PM + Follow Print Email Share:                                                                                                                                                    With the stock market up approximately 26% this year, many investors are starting to become worried. Since you can't predict the top, it does make sense to take some insurance ahead of what will be a volatile first half in 2014.It looks like we are most likely going to see the Federal Reserve begin shifting monetary policy, and this is starting to worry large investors as they’re beginning to take precautions.On December 12, a large institution bought over $5 million of call options for the Volatility Index (VIX), expecting it to jump over the next few months.Specifically, the trader bought 40,000 of the 22 April calls at $1.28. The volatility index currently at 15.4, this is an extremely bullish viewpoint betting that volatility will rise by the April expiry date. What is this investor doing?More likely this is a very large institution that is currently long the market, and is looking to take an insurance policy in case of a sell off.The way it works is that as stocks sell off, volatility increases. This investor is most likely a long-term holder of their positions and doesn't want to sell outright.This is a good lesson for investors, especially long-term holders. Let's say you have a core position that you don't want to sell, adding options to help hedge downside risks is a good strategy.The biggest problem for many investors is once they sell a stock that has gone up, when do they get back in? Even sophisticated institutions have difficulty with timing, so they employ advanced techniques such as adding option trades to help mitigate overall risks.Another approach to hedge your portfolio is to add short positions. I believe having some portion of your portfolio long and some portion short makes strategic sense.With the volatility index beginning to move up, I think this is an early warning that the stock market is very vulnerable to a selloff in the first quarter. With the Federal Reserve about to make a significant change in policy, this could be the catalyst to drive stocks lower.However, the Federal Reserve could also continue pumping money into the system, which will drive stocks higher.This is the conundrum that many institutions are dealing with, and the reason why this particular trader is adding such a large option position to their portfolio.The real lesson, and one you have heard many times before, is this... To find out what this lesson is, click here to find out in Profit Behind The Blog @ BehindWallStreet.com.By Joel Laceda -December 13, 2013 BehindWallStreet.com    Most Popular China Mobile Accidentally Took iPhone 5S Pre-Orders Ahead Of Official Announcement 'Streaming Only Cable Service is Coming,' Say Experts The Reason for Wednesday's Hard Fall in Stocks: 'Dangerous, But Necessary' Johnson & Johnson Shares Under Pressure For Second Day in a Row UPDATE: GE Board Approves 16% Increase in Quarterly Dividend Three Bullish Apple Data Points Related Articles () Market Wrap For December 13: Major Indices Finish The Day Flat Still More Room for Disappointment in Lululemon Benzinga Weekly Preview: Markets Anxiously Await Fed Meeting Urstadt Biddle Properties Inc. Announces Increase in Quarterly Dividend to $0.2525 per Share From $0.25 FDA Approves Gilead's Once-Daily Single Tablet HIV-1 Regimen Complera® for Patients Switching from a Stable Regimen; Also Approved by European Comission Large Option Trade in Volatility, Why You Should be Paying Attention Around the Web, We're Loving... Lightspeed Trading Presents: Thunder and Tubleweeds: Trading Techniques for the New Market Enviroment Pope Francis Rips 'Trickle-Down' Economics Come See How the Pro's Trade in this Exclusive Webinar Wynn, MGM, Other Casino Giants Vying For U.S. Turf What Should You Know About AMZN? Partner Network Get Benzinga's News Delivered Free Zing Talk: Daily Top Stories PreMarket Primer See More » Weekly ETF Outlook Weekly Options Outlook Daily Ratings Summary Posts by BehindWallStreet Large Option Trade in Volatility, Why You Should be Paying Attention Should You Be Buying Tesla Right Now? This Secret Technique Will Improve Returns For Buy & Hold Investor Avoiding These Mistakes Will Make You A better Trader & Investor The Danger in Investing in Twitter Most Read Most Recent 1 China Mobile Accidentally Took iPhone 5S Pre-Orders Ahead Of Offi... 2 'Streaming Only Cable Service is Coming,' Say Experts 3 The Reason for Wednesday's Hard Fall in Stocks: 'Dangerous, But N... 4 Johnson & Johnson Shares Under Pressure For Second Day in a Row 5 UPDATE: GE Board Approves 16% Increase in Quarterly Dividend 6 Three Bullish Apple Data Points 7 AT&T CEO Says Smartphone Subsidies Must End 1 Market Wrap For December 13: Major Indices Finish The Day Flat 2 Still More Room for Disappointment in Lululemon 3 Benzinga Weekly Preview: Markets Anxiously Await Fed Meeting 4 Urstadt Biddle Properties Inc. Announces Increase in Quarterly Di... 5 FDA Approves Gilead's Once-Daily Single Tablet HIV-1 Regimen Comp... 6 Large Option Trade in Volatility, Why You Should be Paying Attention 7 3-D Printing is all the Rage on Wall Street Benzinga Professional Subscribe 7:20 PM Rage against the regulators via ForexLive 5:23 PM Starboard Reports Increased Stake in Office Depot to 8.2% 04:45 PM Market Wrap For December 13: Major Indices Finish The Day Flat 04:38 PM Still More Room for Disappointment in Lululemon 04:34 PM Benzinga Weekly Preview: Markets Anxiously Await Fed Meeting 04:33 PM Urstadt Biddle Properties Inc. Announces Increase in Quarterly Dividend to $0.2525 per Share From $0.25 04:32 PM FDA Approves Gilead's Once-Daily Single Tablet HIV-1 Regimen Complera® for Patients Switching from a Stable Regimen; Also Approved by European Comission 4:23 PM ForexLive Americas wrap: USD/CAD slumps below 1.06 via ForexLive 04:04 PM 3-D Printing is all the Rage on Wall Street 04:01 PM Alexion Provides Update on Recall of Two Soliris Lots; Says No Effect on FY14 Outlook 3:58 PM UPDATE: Dow Jones Reports Sprint Bid For T-Mobile Could Come in First Half of 2014, Could Face US Antitrust Issues 3:56 PM Sprint Working Toward a Bid for T-Mobile US -- Sources 3:53 PM Option Alert: Asiainfo Linkage Spikes Higher; 2,122 January $ 12 Contract Trade @$0.35 3:51 PM Option Alert: AerCap January $30 Call; 1,865 Contract Trade @$0.30; Currently $24.84 3:51 PM Hammerstone Hammerforum Imbalance Update: Benzinga is a fast-growing, dynamic and innovative financial media outlet that empowers investors with high-quality, unique content. Popular ChannelsAnalyst RatingsBe Your Own BossETFsEconomicsForexHotNewsOptionsPress ReleasesStart-upsTechTools & FeaturesAffiliate ProgramBadgesFeedsNews WidgetReal Time FeedSitemapSubmit News TipsAbout BenzingaAbout UsBlogIn the NewsCareersContact UsDisclaimerPrivacy PolicySyndicationTerms and Conditions Benzinga Partners 1 (877) 440-9464 (ZING) Benzinga.com © 2013 FDA Approves Gilead's Once-Daily Single Tablet HIV-1 Regimen Complera® for Patients Switching from a Stable Regimen; Also Approved by European Comission 3-D Printing is all the Rage on Wall Street