VIX Call Volume Spikes as Bearish Volatility Bets Peak

Bets against the volatility index are at an all-time peak

Aug 8, 2017 at 11:06 AM
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Widely viewed as the U.S. stock market's "fear gauge," the CBOE Volatility Index (VIX) has been in focus all year, thanks to its historically low levels. Just yesterday, the VIX settled in single-digit territory for the first time since July 26. In fact, the index has been trending lower since its July 27 pop, and was last seen at 9.65, while its 20-day moving average sits at 9.88. 

All the while, bets against a volatility spike have continued to roll in. Specifically, the latest Commitments of Traders (CoT) report showed large speculators accumulated the biggest net short position on VIX futures on record. Clearly, many traders are expecting this low-volatility run to continue. This amplifies the risk of a volatility pop, should this massive group begin unwinding their position.
 
This may be why VIX call options have remained extremely popular, as those who are short VIX futures look to hedge their bearish volatility bets. Data from Trade-Alert shows calls accounted for 82% of VIX options volume on Monday -- and that's just part of the larger trend.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 6.41 million VIX call options have been bought to open in the past 10 weeks, compared to 1.02 million put options. The resultant 50-day call/put volume ratio of 5.00 ranks in the 94th annual percentile, meaning long calls have been initiated relative to puts at a near-annual-high clip. Plus, call open interest is now at a 52-week high, with 9.9 million contracts outstanding.

vix chart

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