VIX Call Buyers Vanished Ahead of Volatility Spike

VIX call open interest is docked at an elevated level, even though buy-to-open call volume has declined dramatically in recent weeks

by Karee Venema |

Published on Apr 13, 2017 at 8:39 AM

It was a range-bound first-quarter for the CBOE Volatility Index (VIX - 16.02), with the market's "fear gauge" churning between 11.25 -- half its pre-election high -- and 14 (a level that, until recently, had contained VIX closes since the election). This week, the VIX has staged a break to the upside amid rising geopolitical tensions in Russia and North Korea, and yesterday, spiked to its highest close since Nov. 8.

Recent Volatility Spike Marks Impressive VIX Stat

The volatility pop this week has been significant in terms of historic VIX action. As of Tuesday's close, VIX's year-to-date return represented its second-strongest start to the year in the past decade. And, while VIX options remain attractive targets for traders, there's been a notable downshift in buy-to-open activity among call buyers.

VIX Call Buyers Lose Interest

Specifically, Schaeffer's Quantitative Analyst Chris Prybal noted that the VIX 20-day buy-to-open call/put ratio checked in at 2.79 as of Tuesday. While still top-heavy on an absolute basis, this ratio peaked at a nine-year high of 6.60 as recently as Feb. 27. The 58% decline in the VIX call/put ratio since then is its biggest drop over a 32-day time frame since Dec. 12, 2016, says Prybal.

VIX options 20day call_put bto ratio

VIX Options Still Elevated

Despite the drop-off in VIX call buying ahead of this week's spike, the interest in VIX among options traders remains strong. As recently as March 22, call open interest hit a record peak of 9.3 million contracts, while put open interest topped an annual high of 3.6 million contracts. At yesterday's close, 7.4 million VIX calls were open, in the elevated 94th annual percentile. For the sake of comparison, 3.2 million VIX puts are currently outstanding -- an amount that ranks higher than 98% of similar readings taken in the past year.

VIX Options Traders Buy April 17 Calls, Sell April 20 Calls

In the front-month VIX options series, the April 17 and April 20 calls, which expire next Wednesday, April 19, have garnered the most attention -- with 367,967 and 347,813 contracts outstanding, respectively. Data from the Chicago Board Options Exchange (CBOE) confirms the bulk of the activity at the 17 strike has been of the buy-to-open kind, while call writers have a slim majority on the higher-strike calls. While spot VIX and VIX futures for April (VIXAPR) haven't printed north of 20 since early November, VIXAPR was north of 17 back in mid-January.
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