VIX Options Volume Shatters Record on Nuclear Fears

Call players blasted the VIX and VXX today, as volatility ramped up to levels not seen since November

by Karee Venema |

Published on Aug 10, 2017 at 5:08 PM
Updated on Aug 10, 2017 at 5:10 PM

In early July, Schaeffer's Senior V.P. of Research Todd Salamone warned of a seasonality risk for the CBOE Volatility Index (VIX) -- noting it "typically hits its year-to-date lows around the middle of July, before bursting higher into the months of August into October." While the VIX hit a record low of 8.84 on July 26, it spiked to 16.17 today, its loftiest mark since May 18, as anxiety swirled over a potential missile strike from North Korea. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) also popped, prompting options traders to rush to make a play on volatility.

VIX Options Volume Hits Record High

VIX eventually settled the session up 44.4% at 16.04 -- its biggest one-day percentage gain since May, and highest close since Nov. 8 -- bringing its week-to-date gain to 59.9%. The sharp rise in the market's "fear gauge" sparked accelerated options trading, when more than 2.56 million contracts changed hands -- the most ever, according to Trade-Alert. More than 1.98 million VIX calls were exchanged, surpassing the previous all-time peak of 1.94 million calls traded in a single session on July 13, 2015.

Most active was the August 17 call, where more than 171,711 contracts traded. It's not clear how VIX options traders are positioning themselves here today, but this strike is already home to 290,662 open positions -- the bulk of which have been bought to open, according to data from the Chicago Board Options Exchange (CBOE). 

It's likely some of this activity has been a result of those short VIX futures initiating an options hedge against a volatility spike. In fact, the most recent Commitments of Traders (CoT) report showed large speculators had accumulated a record high net short position on VIX futures. What's more, VIX call open interest is at its highest perch since at least July 2010, with 10.3 million contracts currently open.

VXX Call Volume Hits Post-Brexit Peak

VXX hit an intraday high of $13.35 -- its loftiest perch since July 7 -- before closing up 13.6% at $13.29. More than 1.18 million VXX options traded, three times what's typically seen, and a new 52-week peak.

More specifically, 783,235 calls -- the most since June 24, 2016 -- and 405,022 puts traded. However, calls have been in high demand on the exchange-traded note (ETN), with VXX call open interest at the top of its annual range, with 2.97 million contracts outstanding.

The August 13 call is most popular today, with 86,255 contracts traded. This strike is currently home 198,918 contracts -- VXX's top open interest position -- and it's unclear whether traders opened or closed the calls today.

More clear cut is the action at the weekly 8/11 13- and 13.50-strike calls, where 52,830 contracts collectively traded. It looks as if new positions are being purchased at both strikes. If this is the case, the goal is for the volatility ETN to continue to surge through tomorrow's close, when the weekly series expires. On the flip side, bearish volatility traders appear to have bought to open new positions at the August 12 put.

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