Apple Inc. (NASDAQ:AAPL) has been remarkably lifeless on the charts lately, as evidenced by the stock's historical volatility stats. According to Trade-Alert, 30-day historical volatility (HV) in AAPL stands at 9.2%, in the 3rd percentile of its annual range -- while the 60-day (15.2%) and 90-day (16.6%) HV readings each rank below 99% of comparable readings over the past year.

The CBOE Equity VIX on Apple (VXAPL) -- which measures the expected short-term volatility on AAPL stock, using the same methodology as the CBOE Volatility Index (VIX) -- is indicative of muted volatility expectations going forward. VXAPL has been meandering lower beneath its 50- and 80-week trendlines for the bulk of the last year, though it's currently at 21.05 -- recovering from a late-2016 dip below its recent "baseline" level of 20.

As for AAPL itself, the stock has spent quite a bit of time trading around the $120 level lately, as the shares had to work to gather enough momentum to launch above this round price point. Nevertheless, the stock on Thursday managed to hit a new annual high of $122.44

Amid AAPL's period of remarkably muted price action, options traders have -- somewhat understandably -- lost interest in the tech giant. Trade-Alert tallies just 3.54 million calls and puts in open interest on AAPL, which ranks in the 1st annual percentile. And the 52-week low in this metric was reached just days ago, on Jan. 23, as open interest on AAPL cratered to 3.18 million contracts following January options expiration.

Of course, action in AAPL shares could pick up after next Tuesday night's earnings report. Over the past eight quarters, AAPL has averaged a post-report daily move of 4.6% -- slightly larger than the 4% swing the options market is currently pricing in, for what it's worth. In other words, options traders might want to start paying attention to the iPhone parent as quarterly earnings approach, since premiums appear reasonable amid the stock's sleepy trek to new annual-high territory.

And speaking of the iPhone -- for the first time in five years, the Apple Inc. (NASDAQ:AAPL) iPhone is not the top smartphone in China. According to Counterpoint Research, the tech giant's market share in the world's second largest economy shrank from 14.3% to 10.4% between 2015 and 2016, and the company "remains in a vulnerable position."

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In keeping with its usual trend, the iPath S&P 500 VIX Short Term Futures ETN (NYSE:VXX) has been having a rough go of it on the charts lately. VXX shares touched a new all-time low of $18.89 on Friday -- and while the CBOE Volatility Index (VIX) spiked to start the week, VXX remains pinned below its descending 20-day moving average. Against this backdrop, a number of weekly option traders are betting on VXX to continue its decline through Friday's close.

In the option pits, the weekly 2/3 19.50 strike is home to heavy open interest for both puts and calls, with 13,705 puts and 7,734 calls outstanding. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) confirms sell-to-open call activity at this strike yesterday, as well as buy-to-open put activity. This indicates option traders on both sides of the aisle are betting on a continued retreat for the shares, which happened to close squarely at $19.50 yesterday.

Taking a broader look at VXX's downtrend, the shares have dropped nearly 84% from their February highs above $123. VXX's 20-day moving average hasn't been surmounted on a daily closing basis since early November, just before the post-election Trump rally kicked off.

At last check, the iPath S&P 500 VIX Short Term Futures ETN (NYSE:VXX) was trading up 1.7% at $19.83 -- easily within "pinning" distance of that popular weekly 19.50 strike, and more than 5% below its 20-day moving average.

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The iShares MSCI France ETF (EWQ) has come into focus ahead of the French presidential election. Marine Le Pen, representing the populist National Front party, has vowed to renegotiate the terms of France's European Union (EU) membership, if elected, leading to increasing "Frexit" speculation. According to polling firm Ipsos Mori, 80% of French citizens believe the nation needs a "strong leader willing to break the rules" -- which could work in Le Pen's favor.

Amid the geopolitical uncertainty, EWQ has been backing down from the $25-$25.50 area, which served as resistance in mid-2016, as well. Just above this zone is the 50% retracement of the exchange-traded fund's (ETF) 2014 peak to 2016 bottom, which could reinforce the overhead speed bump. Additionally, EWQ was last seen at $25.15, and approaching a 10% gain off its late-November bottom, which could be yet another hesitation point.

Interestingly, the gap between volatility expectations in the U.S. and Europe has expanded to its widest level since the lead-up to the June 2016 Brexit vote. This is based on the spread between three-month futures on the CBOE Volatility Index (VIX), which are coming off a record short position, and Euro Stoxx 50 Volatility ETF (VSTOXX) -- the main fear gauges for the U.S. and Europe, respectively. According to BMO Capital, the "widened gap shows the market is pricing in significantly greater uncertainty in Europe than the U.S."

How should options traders play stocks in this climate? Earlier, Schaeffer's Senior V.P. of Research Todd Salamone recommended a short-term stock replacement strategy, in light of potential policy shakeups from the Trump administration and Fed. Specifically, Salamone noted that a possible volatility pop "is a risk worth keeping on your radar, especially if the market gets spooked by the Fed or by disappointing news out of the White House."

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The S&P 500 Index (SPX) hasn't suffered a drop of 1% or more since October -- a historically bullish signal, as Schaeffer's Senior Quantitative Analyst Rocky White pointed out. With stocks assailing record heights, options traders are scooping up CBOE Volatility Index (VIX) calls at a rapid-fire rate. But the currently vast divide between historical volatility and expected volatility suggests VIX could actually be due to cool further while the stock market continues its rise.

The VIX 20-day buy-to-open call/put volume ratio recently spiked to 6.60 on Feb. 27, marking the most elevated reading since July 2007, according to Schaeffer's Quantitative Analyst Chris Prybal. The "fear index" has traded sideways since early January, with lows mostly in the 11.25 area -- half the VIX's pre-election closing peak at 22.50.  

The VIX premium, for those unfamiliar with the concept, reflects the degree to which spot VIX exceeds the 20-day historical volatility of the S&P. In other words, a VIX premium indicates short-term S&P options are "overpricing" volatility expectations relative to the volatility the index has actually realized over the last four weeks' worth of trading.

Due to the aforementioned low SPX volatility, the index's 20-day historical volatility bottomed out Tuesday at 4.61, while VIX settled the session at 12.92 -- sending the VIX premium north of 150%. That's the first time the VIX premium has exceeded this level since October 2016. Below is how the S&P 500 Index tends to perform following these relatively rare signals, of which there have been only a dozen since 1990 (counting one signal every 30 trading days).

While the SPX tends to underperform its comparable "anytime" returns up to one week after a signal, the index handily outperforms from the one-month to the six-month periods. For instance, one month (21 days) after a signal, the SPX has averaged a gain of 1.98%, and was higher 75% of the time. That's compared to an average anytime one-month return of 0.69%, and positive just 62% of the time, going back to 1990.

What's more, six months after one of these excessive VIX premium signals, the SPX has averaged a healthy gain of 6.37%, and was higher a whopping 80% of the time. That's a great deal better than the SPX's average six-month return of 4.18%, with 73% positive. 

The signal also tends to precede an even lower VIX. Aside from the three-day and two-month (42-day) markers, the VIX has averaged a loss over the intermediate-to-long term. In fact, the VIX has been down an average of 1.89% six months after a signal, and higher just 30% of the time. Since 1990, the VIX has averaged an anytime gain across the board, and was up 6.63%, on average, at the six-month marker.

"This signal usually occurs in bull markets, and similar to other studies on lengthy low-volatility bull markets, strength begets strength," Prybal stated. However, it's worth noting that large speculators remain in an extreme net short position on VIX futures, per Commitments of Traders (CoT) data, and these traders have been wrong at major turning points in volatility, as Schaeffer's Senior V.P. of Research Todd Salamone noted in Monday Morning Outlook. And that's just one of the mounting signs of a volatility pop. 


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Yesterday, the Dow shed 112.6 points, while the CBOE Volatility Index (VIX) plunged 5.8%. This is interesting, for one, because the Dow and VIX are usually inversely correlated -- that is, as one rises, the other typically falls. For another, Schaeffer's Senior Quantitative Analyst Rocky White pointed out that this is just the fourth time it's ever happened. The three previous occurrences are listed in the chart below, which shows the percentage losses on the Dow and VIX, as well as where the VIX settled:

While the sample size is limited, it's interesting to see what's happened next, historically speaking. Starting with the VIX, you can see below that the market's "fear gauge" has drifted lower across all time frames, going out to a month. Of course, with the VIX docked at 11.55, it's considerably lower than where it was during any of the previous three instances -- so a fear spike may be more likely this time around.

Turning to the Dow, it's worth noting that with the blue-chip barometer nearing record highs -- and above the 21,000 millennium level, at 21,013.24 -- a triple-digit loss has lost a bit of its significance. On a percentage basis, yesterday's 112-point fall translated to a relatively modest 0.5% loss -- far narrower than the previous percent losses.

Putting that caveat aside, the Dow has tended to fare well following these rare signals. Per the chart below, the blue-chip index was higher across all time frames after both the August 2015 and June 2016 occurrences. On the other hand, returns were negative in 2008, when U.S. markets were in the thick of the financial crisis.

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While the CBOE Volatility Index (VIX) has been relatively quiet in recent months, VIX options traders have not. The stock market's "fear gauge" has spent 2017 mostly dancing between 11 and 13, and neither yesterday's Fed decision nor the Dow's triple-digit drop a couple weeks ago could push the VIX out of its range, sending up a rare signal. However, traders have been accumulating VIX options at a rapid-fire rate, either to bet on or hedge against a volatility spike.

VIX put open interest is at its highest point since October 2015, with 3.2 million contracts outstanding. Meanwhile, VIX call open interest is in the 99th percentile of its annual range, and is on the cusp of taking out February's record of 8.4 million VIX calls opened. As of yesterday's close, 8.2 million VIX calls were open.

Following a sharp post-election selloff in early November -- which coincided with a broad stock market surge -- the CBOE Volatility Index (VIX) has spent nearly all of 2017 bouncing between 11 and 13. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, last week marked the 10th straight in which the VIX did not make a 10% move in either direction -- a relatively rare phenomenon. In fact, this has happened just 12 other times going back to 1990, with the most recent occurrence in November 2006. 

Drilling down on the data surrounding these streaks of low volatility signals points to more of the same in the near term, with the VIX post-signal standard deviation lower across all subsequent time frames compared to anytime returns since 1992. While VIX does tend to outperform on a percentage basis at both the two- and three-month markers after notching 10 straight weeks without a move of 10% or more, standard deviation over both periods is lower than usual.

Looking at the S&P 500 Index (SPX), meanwhile, this period of low volatility has historically been a bullish indicator for stocks. Per the chart immediately below, in the two-week period following this rare VIX signal, the SPX has averaged a 1.1% gain and has been positive 83.3% of the time, compared to an anytime return of 0.3% and 58.8% positive. Three months post-signal, the SPX has averaged a 3.9% return versus an anytime gain of 2%, and is positive three-quarters of the time.

However, as Schaeffer's Senior V.P. of Research Todd Salamone noted in this week's Monday Morning Outlook, call open interest on VIX options is currently at a record level ahead of tomorrow morning's CBOE Volatility Index (VIX) expiration. Salamone warns that if "the expiring VIX calls are hedges to the enormous short position among large speculators on VIX futures ... or are hedges to long portfolios -- the days immediately after VIX options expiration are when we are most vulnerable to a volatility pop, as unhedged investors are more likely to panic on negative headlines."

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The CBOE Volatility Index (VIX) has been historically tame as the post-election "Trump rally" has played out, but interest in VIX options has remained strong. According to Trade-Alert, total options open interest on VIX stands at 9.68 million contracts -- an accumulation that registers in the 92nd percentile of its annual range. The current VIX open interest configuration is heavily tilted toward calls, of which there are roughly 6.82 million.

VIX Options Sellers Eye April 20 Calls, April 13 Puts

The top open interest strike for VIX is the April 20 call, where traders have stacked up 368,892 contracts. Data from the Chicago Board Options Exchange (CBOE) indicates that a slim majority of these VIX April 20 calls were sold to open -- although the most recent major influx at this strike occurred on Monday, April 3, when 20,651 VIX April 20 calls were bought to open.

On the flip side, the second most popular VIX strike is the April 13 put, with 359,444 contracts located here. CBOE notes a stronger skew toward sell-to-open activity, including a total of over 30,000 VIX puts that were written at the April 13 strike on March 22 alone.

What You Need to Know About VIX Options Trading

In analyzing VIX options activity, it's important to remember two factors: (1) VIX options are based on the expected value at expiration (in this case, April 19), and so are more closely correlated with VIX futures than with spot VIX; and (2) given the frequency with which VIX options are used as hedges, the sentiment takeaways on big open interest accumulations are not always clear-cut.

For example, Commitments of Traders (CoT) data shows large speculators with a sizable net short position on VIX futures, but commercial hedgers are net long -- so there are two major contingents of investors with opposing VIX futures bets, both of which could be using options on the volatility index to hedge. Additionally, some investors will buy VIX calls to "hedge" a long equity portfolio against volatility spikes.

As for the predominance of sell-to-open activity at the April 20 call and April 13 put: VIX futures contracts for April (VIXAPR) and May (VIXMAY) haven't printed as high as 20 since right before the November presidential election. And while April VIX futures have dipped below the 13 level on a regular basis since late March, the May contract has yet to move lower than 13.10 so far this year.

Key VIX Levels In Play

Meanwhile, as Schaeffer's Senior V.P. of Research Todd Salamone has discussed in Monday Morning Outlook, there are some key VIX levels in play on the charts right now. Overhead, the 14-15 area has been a ceiling since mid-November, with the year-end 2016 close standing at 14.04. (The VIX 200-day is also in this vicinity, per the chart below -- though the index does not have a history of respecting these types of benchmark daily moving averages in the same way that tradable assets often do.)

On the downside, 11.25 represents half the pre-election closing high, while 11.23 marks a 20% year-to-date decline. Since December, VIX dips to this area have preceded periods of short-term weakness for stocks. And back on Feb. 1, VIX tumbled as far south as 9.97 intraday, marking its first single-digit handle in about a decade.

The CBOE Volatility Index (VIX) has been soaring lately, amid troubling geopolitical developments in Syria and North Korea. Yesterday, we looked at what the VIX spike could mean for stocks going forward. Today, our attention is drawn to an interesting historical development on the stock market's "fear gauge."

Specifically, the VIX is up 3.5% today at 15.59, bringing its 2017 lead to 11.4%. According to Schaeffer's Quantitative Analyst Chris Prybal, this is the second largest percentage gain for this point in the year, when surveying data from the past decade. The only year in which the VIX was up more year-to-date than it is so far in 2017 was 2014, with most other years actually sporting negative returns. As Prybal notes, "Over the past 10 years, volatility has tended to spike later in the year, as opposed to the first half -- apart from 2010."

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 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.

Last week, we noted that the CBOE Volatility Index (VIX) was sitting on its second-largest year-to-date percentage gain for this point in the year, going back 10 years. As of yesterday's five-month high of 16.28, however, the VIX had topped its 2014 high-water mark, racking up its largest January-to-mid-April gain in at least a decade, up nearly 16%, according to Schaeffer's Quantitative Analyst Chris Prybal. For comparison, the S&P 500 Index (SPX) sports a relatively mediocre year-to-date lead of roughly 5%.

Most years, the market's "fear gauge" was negative through mid-April, and Prybal notes that, "Over the past 10 years, volatility has tended to spike later in the year, as opposed to the first half -- apart from 2010." At last check, the VIX is trading at 15.10 -- back below resistance in the 16.05 area, which is one-half of 2016's intraday high, but still above the key 14 level -- trimming that year-to-date lead to roughly 7.5%. 

The VIX will continue to be in focus in the short term, however. As Schaeffer's Senior V.P. of Research Todd Salamone noted in this week's Monday Morning Outlook, "With the standard expiration of options [on Wednesday], this week could prove pivotal as to where volatility heads in the near term." What's more, the start of earnings season and escalating geopolitical concerns, not to mention a highly anticipated French election this weekend, could also move the CBOE Volatility Index.

April options on the CBOE Volatility Index (VIX) expired yesterday, and traders rushed to replace or establish new positions in the May series. In fact, VIX call volume approached nearly 1.5 million contracts yesterday -- twice the daily average and the highest since just before the Brexit vote in early June. At the same time, just about 144,000 VIX put options changed hands yesterday -- lower than the average 244,000 traded -- resulting in the lowest put/call ratio in at least a year, at 0.10. Against this backdrop, and amid escalating geopolitical tensions and uncertainty surrounding the French elections, it seems speculators are either betting on or hedging against a volatility spike for stocks in the short term.

Digging deeper, VIX call volume topped 1 million contracts for two straight trading days -- something else we haven't seen since the pre-Brexit rush back in June. Prior to that, you'd have to go back to the stock market crash of August 2015. However, what's interesting is the VIX was much, much higher during both those stretches, trading around 20-21 in June and hitting a record close north of 40 in August 2015. The VIX is currently in the 14 neighborhood, though it recently sported its biggest year-to-date lead on record, and peaked in the key 16 area last week.

Most of yesterday's call volume consisted of mammoth spreads in the newly front-month May series. Simultaneous blocks of 200,000 May 30 and 35 calls traded out of the gate, alongside a block of 100,000 May 20 calls. Later in the day, another pair of 100,000-contract trades crossed at the May 30 and 35 calls. Open interest at all three of the aforementioned strikes skyrocketed overnight, with the May 20 and 30 calls home to peak open interest of about 566,000 and 552,000 contracts, respectively. The May 35 strike is in third place with more than 476,000 contracts outstanding.

Following what Schaeffer's Senior V.P. of Research Todd Salamone deemed a "pivotal" week for the market's primary fear gauge, the purchase of these out-of-the-money calls suggests those who are short VIX futures are not yet rushing to cover their short volatility positions, according to Salamone.