VIX Futures Extended Hours Volume Gaining Traction

Every morning that I’m at CBOE I will check the VIX futures volume in the extended hours session and put a tweet out regarding the volume and front month price change.  Here is today’s tweet –

Almost 34,000 $VIX Futures traded in extended hours trading today – Feb VIX up 0.85 to 16.05 – VIX Index closed at 15.80.

For those that are not aware the VIX extended hours trading session consists of a 45 minute trading period between 3:30 and 4:15 in the afternoon Chicago time and then from 2:00 am to 8:30 am.  At 8:30 am the CBOE Futures Exchange switches over to regular trading hours and that lasts until 3:15 pm.  Then at 3:30 pm trading for the following day kicks in.   A full explanation of the hours may be found at –

http://cfe.cboe.com/tradecfe/ETH.aspx

This morning I did a double take and had to check the number before tweeting – that 34,000 volume number was off the charts compared to what I typically see.  The biggest previous volume number was about half that.  Also, the highest extended hours trading volume that I can recall occurred when the January employment number was released – a true market moving event.

So what is going on in the hours before the US stock market opens that causes volatility traders to take position in VIX futures?  I’m sure there are a lot of reasons, my thoughts are –

1) Traders are looking at the S&P 500 Futures and basing VIX Futures trades off that price action.

2) Traders in Europe are trading VIX Futures versus futures contracts that trade on the VSTOXX Index on the Eurex Exchange.  The VSTOXX Index is a volatility measure of the Euro Stoxx 50 Index.  However, today the volume for VIX Futures was about three times that of VXSTOXX Futures so that is not the full explanation, more of a partial volume contributor.

3) Traders in Europe are trading VIX Futures versus their home index markets or as a global volatility hedge.

I am sure there are more strategies and reasons behind the dramatic volume we are seeing in extended hours trading that have not occurred to me.  However, I am sure this will be a topic of discussion in March down in Florida at the 30th Annual CBOE RMC Conference.  I’m looking forward to the planned sessions as well as the social events where I will try to get some more insight into how VIX Futures are being used by volatility players while most of us are sleeping in Chicago.

More information on RMC may be found at www.cboermc.com and if you are considering attending be aware that early bird pricing ends this coming Friday.