The big trade in VIX options on Friday vaulted trading volume to a record high and helped the trader cut hedging losses by potentially more than $18 million, initial estimates suggest.

The CBOE Volatility Index <.VIX>, better known as the VIX, is the most widely followed barometer of expected near-term volatility for the S&P 500 Index <.SPX>. VIX options allow traders to protect against future stock swings.

On Friday, the index jumped to a more than three-month high of 14.58, on a news report that former U.S. national security adviser Michael Flynn is prepared to testify that President Donald Trump directed him to make contact with Russians when he was a presidential candidate. The index was last up 1.07 points at 12.35.

Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors in New York, said the spike in the VIX provided the trader, whom he calls the VIX elephant, the perfect opportunity to roll a position set to expire soon.

Rolling refers to the closing of an existing position to replace it with a similar position that is set to expire further out in time.

On Friday, more than 2 million VIX contracts traded as the trader closed contracts set to expire on Dec. 20 and opened a fresh position in contracts set to expire on Jan. 17.

The massive trade boosted overall VIX options volume to a record 3.1 million contracts, or more than four times the daily average volume, according to New York-based options analytics firm Trade Alert.

While the identity of the VIX elephant was not clear, the sheer size of the position has generated a lot of buzz in the options market.

The trader's December position was geared to benefit if the VIX had lifted to the 15-20 level by Dec. 20, but with the December expiration approaching fast and the VIX stuck well below that range, Friday's spike was a bit of luck for the trader, Trade Alert analyst Fred Ruffy said.

Ruffy estimates that the trader took a loss of $1.6 million on the December position. Had the position been closed yesterday, the loss would have been roughly $20 million.

The new position offers a maximum payout of about $261 million, if the index settles at 25 at the Jan. 17 expiration, Ruffy said.

(Reporting by Saqib Iqbal Ahmed; Editing by Steve Orlofsky)

By Saqib Iqbal Ahmed