Q2 STOCKS TO BUY

VIX Options Signal Points to Possible Volatility Spike

Speculators are targeting out-of-the-money August calls

Jul 19, 2018 at 2:39 PM
facebook X logo linkedin


After spiking above 50 back in February -- its highest mark since August 2015 -- the Cboe Volatility Index (VIX) has retreated back to the 13 mark, below its average daily reading of 13.58 over the past year. Options traders have responded to this apparent lack of fear in the stock market with complacency.

Following yesterday's expiration of July-dated VIX options, VIX call open interest clocks in at 3.98 million -- a new 52-week low. Likewise, the 1.28 million options in put open interest on the volatility index also arrive at the bottom of their 12-month range.

Nevertheless, the bulk of those who have targeted VIX options appear to be bracing for (or hedging against) a short-term volatility spike. The August 30, 20, and 28 calls make up the top three open interest positions, where more than 534,000 contracts collectively reside, and data from the Chicago Board Options Exchange (CBOE) confirms mostly buy-to-open activity.

This particular attention to calls could signal outsized upside for the market's "fear gauge" in the near term, according to data from Schaeffer's Quantitative Analyst Chris Prybal. Since 2010, VIX call volume has accounted for 70% of options volume on the index, over an average 20-day period. There have been 1,200 instances in the past eight years where 20-day VIX buy-to-open call volume has exceeded 70% of total volume, like it does now -- which we'll call a "signal."

Following these previous call-skew signals, VIX returns exceeded the comparable at-any-time returns across all time frames going out one year. The most outsized gains come at the two- and six-month marks, where the post-signal returns nearly tripled the anytime returns.

vix returns since 2010

vix options since 2010

And while a recent stock market study done by Schaeffer's Senior Quantitative Analyst Rocky White found that the index could be headed toward a new low by month's end, this would just echo a VIX seasonal trend. In fact, as Schaeffer's Senior V.P. of Research Todd Salamone noted in an article around this time last year, the volatility index has historically hit year-to-date lows in July, before bursting higher into August through October.

 
 

“Buy This Stock Now!” - Expert Who Called 11x On TSLA

He called a rare 11x on Tesla…

But now, thanks to Elon & Trump’s new alliance…

He says there’s a new opportunity that could be 1,000x BIGGER than Tesla – and it could completely revolutionize a $23 Trillion market.

It’s trading for less than $5 per share right now…

But it won’t be under the radar for long.

Discover The 1,000x Bigger Elon Opportunity Here

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

👀Learn How Dividends Create Passive Income for Life
Receive $200 Off Motley Fool Epic. The Motley Fool Epic $299 discounted offer is based on $499/year list price. Introductory promotion for new members only. Take control of your money and your portfolio with Motley Fool Epic.

💵New Income System Could Pay You $4,243 Monthly
You could collect an average of $4,243 per month starting as early as next week with a new payout system for income investors. New registrations are being accepted for investors who want to be in a position to start with their first payout next week.

🚀Easy 92% Crypto Dividends (No Coins Required)
COIN stock doesn't pay a dividend... But there's actually a new way to collect a massive dividend that's indirectly based on the stock and offers a terrific monthly income (currently yielding nearly 92% on a forward basis).

🤝Free Advisor Match with Wiseradvisor.com
Don't leave your retirement to chance! Get matched with a trusted financial expert for FREE and make the most of your tax refund. Get started now.

⚠️Dennis Quaid's #1 Warning for Americans
Here's the thing: life doesn't come with guarantees. The economy shifts, markets stumble, and years of hard work could slip through your fingers like sand. But it doesn't have to be that way for you. So request a free copy of this Gold & Silver Guide that will arrive right to your doorstep when you act now.

 

 
 

Follow us on X, Follow us on Twitter