Mike Khouw Sees Unusual Options Activity In VIX Index

CNBC Options Action's Mike Khouw spoke on the show about trading activity in VIX index on Tuesday.

He noticed that there was 135 percent higher call option volume than the 10-day average call volume. Traders were buying the December 20 call options for $0.35, betting that the VIX is going to trade above $20.35 or 30 percent higher by December expiration.

Khouw explained that the VIX trades higher when the S&P 500 declines and a 30 percent move higher in the VIX would require a decline of 5 percent for the S&P 500. He added that there was a similar activity in SPDR S&P 500 ETF Trust (NYSE: SPY) put options.