UVXY Put Buyers Brace for a Quick Volatility Retreat

The ProShares Trust Ultra VIX Short-Term Futures ETF (UVXY) has popped 30% today

Sep 13, 2016 at 2:34 PM
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Stocks have been on a roller-coaster ride in recent sessions, with rate-hike chatter from several Fed officials helping the S&P 500 Index (SPX) snap its longest quiet period in years. Today, the action is to the downside, sending the ProShares Trust Ultra VIX Short-Term Futures ETF (UVXY) soaring 30% to 25.19 -- and options bears scrambling to bet on the exchange-traded fund's (ETF) near-term trajectory.

Taking a quick step back, bearish bets on volatility are not unusual these days. In fact, according to the latest Commitment of Traders (COT) report, large CBOE Volatility Index (VIX) traders currently have the largest short position on VIX futures on record. Plus, total large VIX speculator positions are also at an all-time high.

Against this backdrop -- and with UVXY stuck on the short-sale restricted list following Monday's huge move higher for the broader stock market -- put volume on the ETF has swelled to three times what's typically seen at this point in the day. In fact, with roughly 100,000 UVXY puts on the tape, put volume is in the 99th percentile of its annual range.

Most active is UVXY's September 20 put, where more than 10,400 contracts have traded. It looks as if new positions are being purchased, suggesting put buyers are anticipating a quick retreat south of the round 20 mark by this Friday's close, when front-month options expire.

More broadly speaking, options traders across the major exchanges have shown a preference for long calls over puts in recent weeks -- perhaps to hedge short VIX positions or to guard against a volatility pop. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 1.35 UVXY calls have been bought for each put over the past 20 sessions.

Echoing this is the ETF's Schaeffer's put/call open interest ratio (SOIR) of 0.49. Not only does this show that calls more than double puts among options expiring in three months or less, but it ranks lower than 90% of all comparable readings taken in the past year. Simply stated, short-term options traders are more call-heavy than usual toward ProShares Trust Ultra VIX Short-Term Futures ETF (UVXY).

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