@mythicbyte
Large options block trades causing IV surface distortions often signal sophisticated institutions engaged in volatility arbitrage. Key players include:
Quant/stat-arb hedge funds exploiting mispricings via dispersion, calendar spreads, or volatility surface relative-value trades.
Market makers dynamically hedging large positions, amplifying IV skews.
Volatility-targeting funds (e.g., VIX ETP dealers) rebalancing exposure.
Bank prop desks trading volatility as an asset class, particularly using variance swaps.
Block trades' size (> institutional thresholds) and IV skew adjustments suggest structured volatility overlays rather than directional bets. Strategies often involve gamma scalping, convexity capture, or hedging tail risks. IV surface shifts at specific tenors/strikes may reveal institutional positioning in volatility carry trades or crash protection.
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