VIX Call Options Crazy as Fear Gauge Breaks Records

With U.S. stocks treading deeper into uncharted waters, the CBOE Volatility Index (VIX) has been on a record-setting mission of its own. Following the expiration of a massive number of July VIX call options on Wednesday, the market's "fear gauge" closed south of 10 for the fifth straight session -- a first for the index. Nevertheless, VIX options trading was accelerated in Wednesday's session, with most of the activity occurring on the call side of the aisle.

Around 768,000 VIX calls changed hands yesterday -- 1.6 times what's typically seen in a single session, and more than triple the number of puts that traded. This was still far below the April 19 annual high of 1.5 million VIX calls traded in one day. Newly front-month August VIX options saw the most activity, accounting for eight of the 10 most active options.

The August 12 call saw the biggest increase in open interest overnight among near-term contracts -- second only to the December 15 call -- with 32,618 contracts added. Data from the Chicago Board Options Exchange (CBOE) confirms the bulk of this activity was of the buy-to-open kind, suggesting options traders are eyeing a print above 12 over the next month.

With yesterday's massive influx of new positions here, the August 12 call is now home to 119,799 contracts. However, this is pales in comparison to the August 20 call -- VIX's top open interest position -- which houses 346,739 positions. Following closely behind are the August 30 and 35 calls, with 326,748 and 322,956 contracts, respectively.

Data from the CBOE indicates significant buy-to-open activity at the 20 strike, while the 30 and 35 strikes were used last week to initiate a long call spread -- suggesting speculators are preparing for an upcoming volatility spike. Data from Schaeffer's Senior Quantitative Analyst Rocky White suggests the VIX tends to jump in the August-to-October stretch. With large speculators holding a near-record net short position on VIX futures, it's possible that some of this activity is due to speculators hedging these short volatility bets.

Today, the August 12 call has seen the most action, with 85,457 contracts traded -- nearly 20% of the total intraday VIX options volume -- though it's unclear what exactly is transpiring here. Earlier in the session, VIX tiptoed above the 10 mark, but was last seen trading down 1% at 9.69, set to extend its string of single-digit closes to a record six.