VIX Call Options Fly Ahead of Trump Inauguration, Fed

A number of scheduled calendar events have traders scooping up VIX call options, including Donald Trump's upcoming inauguration

Jan 17, 2017 at 1:49 PM
facebook X logo linkedin

CBOE Volatility Index (VIX) call options have been flying off the shelves, leading to speculation that investors are bracing for a massive stock sell-off, as these vehicles are commonly used to hedge long equity positions. According to Trade-Alert, Friday marked the fourth straight day of noteworthy action in out-of-the-money (OOTM) VIX calls, with traders homing in on the deep OOTM February 21 strike -- which expires on Wednesday, Feb. 15.

The expiration date is notable, as it follows a pair of highly anticipated events, either of which could spark a surge in volatility. For one, President-elect Donald Trump's inauguration is scheduled for this Friday; for another, the Fed's two-day policy meeting kicks off on Tuesday, Jan. 31. Although a rate hike is considered unlikely, Wall Street will be scouring the central bank's post-meeting announcement for hints of a potential interest rate hike in March, which could trigger a spike in the VIX.

Other factors are likely fueling the rush for calls, too, according to Schaeffer's Senior V.P. of Research Todd Salamone. "With February VIX futures recently hitting their lowest level since mid-December, volatility speculators and those using VIX options as portfolio insurance may see this as an opportune time to bet for or hedge against a pop in volatility," Salamone explains. "Earnings reporting season is about to get into high gear, the inauguration is scheduled for the end of this week, 'Brexit' headlines are returning, and another Federal Open Market Committee (FOMC) meeting between January VIX expiration and February VIX expiration is on the calendar, which may be enough to make VIX call options attractive."

Speaking more broadly about the bias toward calls on the market's "fear gauge," the VIX sports a top-heavy 20-day call/put volume ratio of 4.19 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Moreover, last Thursday, this reading clocked in even higher, at 4.78, its loftiest level since early November, per the chart below (courtesy of Schaeffer's Quantitative Analyst Chris Prybal):

vix call put ratio jan 17

It's more of the same today. With call open interest already docked in the 93rd annual percentile -- versus puts, which are in the middling 47th percentile -- calls are changing hands at twice the usual intraday rate. The deep OOTM February 17 call occupies the top position, while the third most active strike is the February 22 call. At last check, February VIX futures were 0.4 point lower at 14.20.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI