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.


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...

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