VIX Call Buying Picks Up as Stocks Hit Record Highs

Despite the CBOE Volatility Index (VIX) lingering at two-year lows, call buying has picked up the pace in recent weeks

by Karee Venema

Published on Jan 26, 2017 at 9:41 AM

Stocks have resumed their record-setting run this week, with the release of several White House policy announcements seemingly breathing new life into the Trump rally. What's more, a round of well-received blue-chip earnings helped send the Dow soaring past the psychologically significant 20,000 mark. As such, the CBOE Volatility Index (VIX) -- or the market's "fear gauge" -- is hovering at its lowest levels since July 2014. Nevertheless, while put volume on VIX futures ran at an accelerated clip on Wednesday, 1.6 times the average intraday rate, the overriding trend in recent weeks has been toward long calls.

Per data from Schaeffer's Quantitative Analyst Chris Prybal, the VIX 20-day buy-to-open call/put volume ratio is moving higher -- with the ratio at 4.74, compared to its week-ago reading at 4.58. Likewise, the VIX 10-day buy-to-open call/put volume ratio has risen to 4.22 from 4.17 in the past week.

vix 20day bto call_put ratio

vix 10day bto call_put ratio

Drilling down, it's been deep out-of-the-money strikes in the February series -- which expires on Wednesday, Feb. 15, in the wake of the upcoming Fed meeting -- that have seen the biggest increases in open interest over the 10-session time frame. Specifically, the February 17 and 22 calls have seen the largest rises in open interest in the last two weeks, with a combined 495,085 positions added. These two strikes are now home to the second and third largest VIX open interest positions -- with the February 21 call in the top spot, with 394,488 contracts currently outstanding. Combine this accelerated call buying with an extreme short position on volatility futures by large speculators, and it seems many may be bracing for -- or hedging against -- a large volatility pop.

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