VIX Options Volume Explodes on Volatility Surge

One volatility trader may have logged a $23 million paper loss yesterday

Feb 6, 2018 at 2:16 PM
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The CBOE Volatility Index (VIX) surged 115.6% on Monday -- its largest one-day pop on record -- as panic selling hit the U.S. stock market. And as inverse volatility notes plummeted while the Dow racked up its biggest two-day point drop to date, VIX options were in high demand, with volume hitting a record high on Friday and logging its second most-active trading day on Monday. Plus, according to Trade-Alert, total marketwide option volume of 35.5 million contracts was the third highest ever.

Drilling down, 4.33 million VIX options traded on Friday -- 3.23 million calls and 1.10 million puts. The February 25 call was most active, with 597,636 contracts traded. Data from the Chicago Board Options Exchange (CBOE) confirms 45,406 new positions were purchased here, as spot VIX climbed to an intraday high of 17.86, a level that, at that time, had not been touched since the day after the 2016 U.S. presidential election -- possibly as stock traders sought out portfolio protection.

More notably, though, is a massive six-way spread that involved rolling out 216K February 12 puts and a 1X2 February 15-25 call ratio spread to the March series. According to Trade-Alert, though, the volatility trader incurred a paper loss of roughly $23 million on Monday, as March VIX futures spiked to an intraday high of 28.90.

Meanwhile, 3.62 million VIX options traded on Monday -- 2.99 million calls, versus roughly 630,000 puts. It's a similar set-up today, too, with 3.42 million options on the tape, nearly three-quarters of which are calls. Similar-sized blocks of March 15 and 25 calls changed hands earlier alongside the March 12 put, and were marked spread. However, it's unclear if these positions are being opened or closed.

Earlier today, VIX printed above 50 for the first time since August 2015, as stocks plunged at the open. The market's "fear gauge" has since swung lower, though, with the stock market stabilizing, last seen down 1.5% at 36.75.


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