Who done it? VIX manipulation?

henry145 · Post by **henry145** » Wed Oct 29, 2008 1:48 am

Last week someone had bought massive amounts of OTM SPX puts right before the opening VIX calculation. By doing so this lifted the level of the VIX to an "artificial level" and hence raised the cash out price on VIX calls and futures.

In this type of environment, how big of risk is there for those who game the system?

temnik · Post by **temnik** » Wed Oct 29, 2008 3:45 am

If memory serves me right, nobody went to jail but fines were paid for "slamming" natural gas markets at the close. VIX is no natural gas, so the alleged victims will find little sympathy in DC.

Tradenator · Post by **Tradenator** » Wed Oct 29, 2008 5:15 am

Warren Buffett covering his [url=/Show%20Post.aspx?PostIDKey=111912]short position[/url] irrespective of the VIX timing?

granchio · Post by **granchio** » Sat Nov 01, 2008 2:38 pm

are you sure that was done just to manipulate the VIX? it is not unconceivable that in this market circumstances people want to buy OTM puts. esp. people who are short large gap risk. and there is a lot of them around

curvefitter · Post by **curvefitter** » Sun Nov 02, 2008 3:34 am

some option blog valued the PL of the position at about 180 mil within a couple of days

meteor · Post by **meteor** » Sun Nov 02, 2008 5:17 am

I am not sure that using the argument this trade made money is a good argument against the manipulation hypothesis.

What I do not understand about this trade is: Why that person had the urge to buy so many options at the opening and in fact biding up the price of what he was buying.

Supposing that person wanted to buy that much amount of vol, wouldn't it have made more sense that he/she spreads his/her order throughout the day?

FDAXHunter · Post by **FDAXHunter** » Sun Nov 02, 2008 1:36 pm

You mean just like it would have made more sense for SG to spread their liquidation of the Kerviel position over three weeks instead of three days? Yes, it would have, but unfortunately there's a trade off between immediacy and market impact, and sometimes you can't afford to wait, even if it turns out costing you more in the end. There were times when a simple unleveraged stock portfolio could move 10% in 20 minutes, so it's perfectly understandable that someone just wants to get the hell out (or be hedged).