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: How to hedge volatility

September 3, 2015

Russell Rhoads of the CME explains the pros and cons of leveraged exchange-traded funds that are based on VIX futures.

VIX

Video: What the VIX 'curve' shows

September 2, 2015

The CBOE's Russell Rhoads says nearer-term VIX futures are above the later contracts in what's known as "backwardation," indicating that higher volatility may not end right away.

VIX

Video: What VIX pits are seeing

September 1, 2015

Traders were buying VIX calls above the 40 level early in the session, but Group One's Mike Palmer says that activity quickly pulled back.

VIX

Video: Whipsaw moves in the VIX

August 31, 2015

Group One's Mike Palmer explains why the volatililty index saw broad swings right before and after the weekend. Traders are now focused on today's close.

VIX

Videocast: Volatility in September?

August 20, 2015

Group One's Jamie Tyrrell says traders are buying next month's calls on the volatility index, bracing against a pullback in the S&P 500.

OptionsHouse

Premium Services

Archived Webinar

Education & Strategy

Options Academy: On Options Strategies in General

Before we hop into the different option strategies, I have a few thoughts for you to remember concerning the strategies and our use of them.

View more education articles »