Monday, June 23, 2008

VIX Put to Call Ratios and Call Option Volume

I have not yet posted much about VIX call options volume on the blog, but the subject of VIX option volume and put to call ratios is an interesting one that I will return to periodically.

First, I should set some context by pointing out that two years ago, it was rare for VIX options volume to hit one million contracts in a single month. Following the record 64% one day spike in the VIX on February 27, 2007, VIX options suddenly surged in popularity, with their monthly volume rising steadily and peaking in August 2007 at 7.15 million. Interestingly, since last August, VIX options volume has been fairly steady month to month and has been averaging about 4 million contracts per month.

Given the general increase in activity in VIX options volume, it should come as no surprise that the call volume has surged with the overall options activity. For this reason I have included two VIX options charts, each with the monthly close in the SPX for reference. The top chart shows two years of the VIX monthly put to call ratio. From a quick visual study, it is difficult to conclude that this data provides much in the way of meaningful clues about future trends in the SPX. The bottom chart is a two year history the VIX monthly call volume (with projected end of month volume for June based on data through 6/20/08) and shows a moderate negative correlation between the VIX put to call ratio and movements in the SPX, particularly during 2007. I mention this because VIX call volume for the month of June is on track to be at its highest level in at least 7 months, with the spike in VIX calls increasing the likelihood of a market bottom in the near term.

Consider this an appetite whetter; I will delve more into VIX options and various interpretations of VIX options data in this space going forward.


2 comments:

Anonymous said...

It seems most trader expecting March low to hold? $VIX is lower then June 10 high and below 200SMA while market tanked more then June 10... Yesterday CBOE had a BIG drop while market held flat... pretty big divergence going on here...

Anonymous said...

I needed to thank you for this wonderful read!

! I absolutely enjoyed every little bit of it. I have got you
bookmarked to look at new stuff you post…

Feel free to surf to my blog ... best diet plan for women

DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2013 Bill Luby. All rights reserved.
 
Web Analytics