OptionsHouse

Options Trading News

February 26, 2013  Tue 4:47 AM CT

VIX: SEE CHART GET CHAIN FIND STRATEGIES
Yesterday's surge in the CBOE Volatility Index was one of its largest, but in some ways was no great surprise.

The VIX was up 34 percent at the end of the day, finishing at 18.99. That makes it the 11th-largest move in the history of the VIX.

The biggest was in February 2007 and, interestingly, was the only other example in recent times to come with the VIX starting below 20. It jumped from 11 to above 18 that day, something I remember pretty well because I was long VIX calls at the time.

But how could anyone have anticipated yesterday's spike? At least part of the answer may lie in my "Options Academy" column from Feb. 13, which outlined a scenario that could cause such a large move:

"This would happen if the hedge funds, which are largely playing catch-up already, are forced to buy VIX futures to cover their shorts. And the market markets too would be forced to buy VIX futures to cover their exposure to all the short VIX calls they carry. It could get ugly quickly."

I believed then that the looming sequestration would be a potential catalyst for much higher volatility (and still believe that now). But as we have seen, there are many things that can send bulls to the exits and spur traders to buy volatility regardless of cost.

So the next time that markets are at or near highs while the VIX is unusually low, it might be worth remembering just how volatile volatility can be. 
Share this article with your friends


Related Stories

VIX

Video: VIX rises with call buying

May 29, 2015

With the spot volatility index higher in this market selloff, Group One's Jamie Tyrrell says traders are buying the VIX June 16 and 17 calls.

VIX

Videocast: VIX going to Weeklies

May 28, 2015

Group One's Jamie Tyrrell says new VIX Weekly options will soon replacee available, replacing the nine-day CBOE Short-Term Volatility Index (VXST) contracts.

VIX

Video: June VIX calls bought again

May 27, 2015

Even though the market has reversed course with today's rally, Group One's Jamie Tyrrell says traders are buying VIX June 18 calls for the second session in a row.

VIX

Video: Volatility measures jump

May 26, 2015

Group One's Jamie Tyrell says traders are buying June and July VIX calls with the spot index up 15 percent and the nine-day CBOE Short-Term Volatility Index (VXST) spiking 40 percent.

VIX

Video: Huge June VIX call buy

May 22, 2015

Group One's Jamie Tyrrell says one large player purchased 140,000 July 18 calls in the VIX, adding to heavy upside buying earlier in the week.

Invest Like a Monster - San Diego: June 26-27

TRADING WEEKLY OPTIONS

The fastest money in the market
View full report »

Premium Services

Archived Webinar

Education & Strategy

Long synthetic call

Long and short Synthetic stock are two of the six basic synthetic positions that exist. Number three on our list is the Synthetic Long Call...

View more education articles »