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

Videocast: Big April VIX call buying

March 27, 2015

GroupOne's Jamie Tyrrell says a major player bought 150,000 April 20 calls late yesterday even as VIX futures fell.

VIX

Videocast: VIX not showing panic

March 26, 2015

Despite the market's downturn this week, Group One's Jamie Tyrrell says traders apparently do not believe that the VIX will hit the 20 level.

VIX

Videocast: April, August VIX calls

March 25, 2015

As the market selloff accelerates midday, Group One's Mike Palmer says traders are buying protection through VIX calls in April and August.

VIX

Videocast: Looking for higher volatility

March 24, 2015

Group One's Jamie Tyrrell says investors are buying upside calls in the VIX and selling puts, looking for the volatility index to push higher.

VIX

Videocast: Buying April VIX calls

March 19, 2015

As the market pulls back from yesterday's rally, Group One's Jamie Tyrrell says traders are buying VIX April 22, 26, and 27 calls.

OptionsHouse

TRADING WEEKLY OPTIONS

The fastest money in the market
View full report »

Premium Services

Archived Webinar

Education & Strategy

Short Gamma

Last week, we talked about long Gamma. We said that long gamma is acquired by purchasing options and when you...

View more education articles »