$VIX calls turn 8-fold

Bullish bets on the CBOE Volatility Index have turned huge gains today, rewarding option traders for the fourth time in recent weeks.

On Jan. 27, Market Rebellion’s Unusual Avtivity tracking systems cited the purchase of 37,500 18March 28 calls for $0.55 to $0.60 with the underlying at 17.68. There was an outstanding open interest of just 23,894 contracts before the trade, indicating that this was a new position.

Those calls traded for as much as $5.30 today, more than 8 times their purchase prices. The underlying rose 167.19% in the same time period, underscoring how options can far outperform their underlying asset.

It is the fourth winning trade in the CBOE Volatility Index to be posted on Market Rebellion in recent weeks.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

The VIX spiked higher today to a mid-session high of 49.48 but has since edged lower, last up by 18.39% to 46.36. The index, which does not have a dollar value and trades inversely to the S&P 500, has spiked as equities decline.