Behind the Mad Dash for VIX Put Options

CBOE Volatility Index (VIX) put volume has skyrocketed since the presidential election

Dec 2, 2016 at 1:23 PM
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In the wake of the presidential election, as the S&P 500 Index (SPX) and its index peers soared to record highs, the CBOE Volatility Index (VIX) -- or the market's "fear barometer" -- naturally plummeted from post-Brexit peaks. What's more, amid the skyrocketing optimism, put buying on the VIX surged to a pace not seen since September 2015, according to Schaeffer's Quantitative Analyst Chris Prybal.


VIX 20day Dec 2 1

 
As a result, the 20-day buy-to-open call/put volume ratio for the VIX has taken a nosedive. After hitting an annual high of 5.57 on Oct. 31, the ratio plunged 71% in a 21-day span -- the sharpest drop since December 2014, around the last time stocks were this overbought. This ratio is now back in the post-Brexit neighborhood from early July.
 

VIX cp ratio Dec 2 3 

In the past 10 days, VIX December options (expiring Wednesday, Dec. 21) account for the top 11 most active. The 12- and 13.50-strike puts have seen notable builds of roughly 153,500 and 144,000 contracts, respectively, indicating buyers are expecting more downside for the VIX in the next few weeks. Nevertheless, VIX front-month calls still dominate, with the deep out-of-the-money 21 strike home to peak open interest of nearly 274,000 calls. The 20-, 22-, and 25-strike calls are also popular, with more than 200,000 contracts outstanding apiece.

On the charts, the CBOE Volatility Index (VIX) went on a historic winning streak ahead of the election, but ultimately stopped short of its post-Brexit highs. Specifically, the VIX stalled around $23 during its last surge, which is roughly double its August 2015 lows. In fact, while the VIX has embarked on a series of lower highs since the fourth quarter of 2015, the $11-$13 region has provided solid footing, and the "fear gauge" hasn't been in single-digit territory since before the financial crisis. What's more, the VIX has essentially followed its election-time pattern, ending up back in the $12 area, as predicted

VIX chart Dec 2 3




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