VIX call buying surges as the S&P 500 nears record levels
The S&P 500 Index (SPX) is trading near all-time highs, which is nothing new over the past several years. But there has been a sudden interest in hedging against a volatility spike. That’s evident in the 10-day buy-to-open (BTO) call/put ratio for Cboe Market Volatility Index (VIX) options. A spike in VIX call buying has pushed the ratio above 6.0, which has been reached just a handful of times since 2025.
The VIX measures the expected volatility of the SPX over the next 30 days. Since the VIX tends to rise when the SPX falls, portfolio managers often use VIX calls to hedge against a sharp market downturn.
There’s a contrarian argument, however, that if investors are hedged against a selloff, they may be less likely to panic sell, minimizing the likelihood of a sharp pullback. An alternative theory is that VIX option buyers are more sophisticated traders, and the unusual spike in call buying could be smart money. If so, SPX underperformance over the short- to medium-term wouldn’t be surprising. Instead of taking a side, I’m examining the historical data to see which theory holds up.
VIX Call Buying Spikes Above a Key Level
The table below shows how the SPX performed after the VIX 10-Day BTO Call/Put Ratio spiked above 6.0. I only counted the first spike in at least a month. The second table shows typical index returns for comparison, while the overall results show a clear theory winner. VIX option traders have historically appeared as smart money investors rather than overly cautious investors. The SPX significantly underperformed after previous spikes in the ratio.
Since 2014, there have been 31 instances when the VIX BTO call/put ratio spiked above 6.0. Over the following two weeks, the SPX averaged a loss of 0.60%, with only 45% of returns positive. For comparison, the index typically gained 0.50% over two-week periods with 64% of returns positive. In the three months following a spike, the SPX lost 0.65% on average with 60% of returns positive, versus a typical three-month gain of 3.11% and 75% positive.
The signal also shows an unfavorable risk/reward profile. In fact, each timeframe that I looked at, the average positive return following a spike was smaller than normal, while the average negative return was larger in magnitude. In other words, after these ratio spikes, there was less upside potential and greater downside risk.
Given the underperformance of the SPX, it’s not surprising that the VIX tends to increase significantly after these signals. The table below summarizes VIX returns after the VIX 10-day BTO Call/Put Ratio spikes above 6.0.
Implications Moving Forward
With the market trading near all-time highs, the analysis above suggests it might be a good time to take some profits. Since 2014, when the VIX 10-day BTO Call/Put ratio spiked above 6.0, which signaled on Monday, it has typically been followed by significant stock market underperformance.