The average daily trading volume for options on the CBOE Volatility Index® (VIX®) has risen every single year since their introduction in 2006 (see Chart 1 below). VIX options volume and open interest hit record levels in 2012, as noted below.
VIX OPTIONS IN 2012
Here are some key facts about VIX options in the year 2012 –
- Average daily volume for VIX options rose 12% to hit a new record of 442,959 (see Chart 1 below).
- Total yearly volume for VIX options was a record 110,739,796 VIX options (including 70,977,589 VIX call options and 39,762,207 VIX put options). The aggregate put/call ratio for all trading days in 2012 for VIX options in 0.56 (see charts below).
- The year-end open interest for VIX options rose from 3,100,814 in 2011 to a record 6,397,711 in 2012 (a 106% increase).
RELATIONSHIP OF VIX PRICE LEVEL AND THE VIX PUT AND CALL VOLUMES
Charts 2 through 5 below show daily values for the time period from Aug. 1, 2011 (before the S&P downgrade of US debt) through Jan. 2, 2013 (the date of the fiscal cliff legislation).
Issue that are raised by these charts are as follows – Are there relationships among daily VIX price levels and the volumes for VIX and SPX options? Is there more VIX call buying when VIX is low? Is there more VIX volume in times of high volatility of volatility?
The table below shows dates since Aug. 1, 2011 – five dates when VIX had its lowest closing values and five dates when VIX had its highest closing values. The average of the put/call ratios on the five low dates was 0.47, while the average of the put/call ratios on the five high dates was 0.76. This brief anecdotal analysis indicates that there indeed can be more VIX call volume (related to VIX put volume) when VIX is at low levels. See also Charts 2 through 5 below.
Date VIX Daily Close VIX Put/Call Ratio
Low VIX Levels
17-Aug-2012 13.45 0.53
13-Aug-2012 13.70 0.32
19-Sep-2012 13.88 0.27
21-Sep-2012 13.98 0.42
20-Aug-2012 14.02 0.83
High VIX Levels
30-Sep-2011 42.96 0.90
10-Aug-2011 42.99 0.92
19-Aug-2011 43.05 0.60
3-Oct-2011 45.45 0.87
8-Aug-2011 48.00 0.44
VIX OPTIONS STRATEGIES
Yesterday (Jan. 4) the VIX spot index closed at 13.83 and the VIX Jan. ’13 futures closed at 15.30.
If you are bullish on VIX and VIX futures, or are concerned about a catastrophic drop in the S&P 500 Index, VIX options strategies you could consider include —
> Long VIX Call Options
> Long VIX Call Spreads
> Short VIX Put Credit Spreads