Monday, August 13, 2007

Commercials Get Long the VIX in a Big Way

The chart below comes from and reflects positions from the Commitment of Traders report published last week. If you are not familiar with these reports there is no good short explanation I can offer, other than to pass along that conventional wisdom sees the commercials as the smart money in this equation. Their record is not great, but their positions generally have better predictive value regarding the future of the VIX than that of the large traders or the small traders.

I do not put a great deal of stock in the COT data, so I am posting the chart largely for informational purposes. Even if you don't agree with a dissenting opinion, it is important to pay attention to it, particularly if others do. Finally, if the commercials are correct, it looks like we have a category 5 volatility storm headed our way.


Anonymous said...

that's an odd sort of site. How did you come upon it?

Bill Luby said...

Hi Babak,

Blame Google, I think. As I recall, was (is?) the only free public site I could find that maintained a current VIX COT chart, so I've had it on my list of VIX links going back to just about the time I started this blog.

I'm not really a big believer in the COT information, but I do keep an eye on it.



P.S. Thanks for confirming the ISEE 51 error.

Robert said...


I bet you already saw this, but...

at OD:


AUG 25c buyer 30,000 for 2.50

Posted by Big Doggy on Monday, August 13, 2007 at 09:54 AM |


Yeah, that is a 7.5Mil bet that the VIX will close above 27.5 by Friday.

Every single time I have seen these type of bets lined up, significant volatility has seemed to follow.

Combined with the COT data, I believe that CAT 5 you were referring to may indeed happen.

Bill Luby said...


Am I the only one who is thinking that a fund about to liquidate massive size (or someone in the know about same) would be well advised to load up on VIX calls...?

I hate to be a conspiracy theorist, but you are right, the recent success rate for many of these large buys has been uncanny.



Robert said...

Needless to say, my VIX puts are LOC.

It isn't a conspiracy as much as it is the way of the street. Or the way of life, battle, business, etc.

Information is power and I am willing to bet that someone who has it is betting accordingly.

Robert said...

Also, FWIW, the price action today would lead me to believe that a rise in the VIX is more likely than a decline, at least in the short term.

Additionally, I seem to remember a trader on Options Doggy's blog mentioning that he/she had reviewed all buys/sells that were over $1 Mil and the success rate was something like 70%-80%. As I recall, this was a comment to a post by BD. I never thoroughly checked that number, but the few multi-million trades I did review seemed to demonstrate a very high success rate.

With that VIX trade clocking in at $7Mil, I tend to believe that there must be a very savvy operator behind that trade. Sure, it could be a hedge, but that still implies that someone was willing to make a very large bet over a very short time frame to protect the rest of their portfolio.

nodoodahs said...

How do we verify that it is ONE buyer and multiple sellers? It would seem to be the best chance of it being a "smart player" if that were the case.

Could it be ONE seller and multiple buyers?

Forgive my ignorance of the Options Doggy site.

Bill Luby said...

Hi Bill,

I am not sure exactly what sort of data feed Options Doggy has, but I'm pretty sure he works from time and sales data, so he knows if it is a single transaction or several ones.

Alternatively, I just look at step function jumps in the volume and open interest and match the execution price to the prevailing bid or ask to make a best guess about whether it is a buyer or seller.

As you point out, these could be 1-1 transactions or 1-many transactions. With this size, my guess is that it is most likely a 1-1 deal...but these are just guesses.

When I get some more info from Options Doggy on his methodology, I'll post it here.



Anonymous said...

This is what i posted on my site in response to your questions:

So I got a good question from Bill Luby of Vix and More( and I get similar questions often, so here's an answer. But first, the question:

The reason for my e-mail is that a VIX and More read had some questions about your methodology and basically wanted to know how you could be sure if you were reporting on a single transaction vs. multiple transactions and therefore a single buyer/seller vs. multiple buyer sellers. Without giving away everything you do, I'd be interested in hearing the answer as well. Perhaps it is already on your blog and I wasn't able to locate it.

It's actually pretty simple - I have a scanner that watches every options trade and returns all trades that fall within my parameters. I have the paramaters set at minimum 2000 contracts with no conditional trades (meaning if it was entered as a spread it won't show). When a tradfe is executed within those paprameters, I look at it and, if i deem it substantial, I'll pass it on to you. So I won't tell you when a 10,000 lot in the Q's trades, because that really isn't that big of a deal, but a 2,000 lot in say, PCLN, is a big deal. If an order pops up on this filter, it's safe to assume it is coming from one customer, since firms usually don't bundle orders like that.

I also have a scanner that shows disproportionately high volume trading. So these LXK that have been tradnig didn't show up on my big block ticker, because they were all 20 lots or smaller, but over the course of the afternoon thousands had traded where there was previously very little open interest. In this scenario, the buying or selling interest could be a result of multiple smaller bidders, or one bidder breaking his order up into smaller pieces. When I post from this filter, I generally won't have a single price to report, as it is usually done over multiple prices throughout the day.

Both filters are proprietary software, but licenses are available ($1,000 / month i think - maybe more or less depending on users and uses.)

Hope this clears some stuff up!

nodoodahs said...

OK, good deal. Here's my thought:

If it is a one-to-one transaction, we have no idea who the smart money is unless we know who the players are and check their records. Fat chance of that happening.

If it is one buyer getting long the VIX and clearing out a bunch of asks, then it's a good bet they're smart money, expect more volatility.

If it is one seller clearing out a bunch of bids, it's also a good bet they're smart money. Expect less volatility.

That's why it would be good to know ... of course, we may know the answer soon, anyways!


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