I recently showed a chart with the yearly growth in volume in options on the CBOE Volatility Index® (VIX®) to a senior executive at a financial services firm, and the executive said that the VIX options volume strong growth in recent years was hard for him to believe, in light of the fact that the VIX Index had been relatively low in recent years. I responded that the VIX options had experienced some high volume days even at times when the VIX was relatively low and not making any big moves, because some investors like to buy VIX calls and VIX futures at times when the VIX is lower than 13; they like to “buy low” and believe the VIX Index is mean-reverting; they believe the index has great potential to go up dramatically but little potential to take a dramatic fall when VIX is below 13.
RECORD VOLUME DAYS THIS MONTH
While some investors prefer to buy VIX calls when the VIX is at relatively low levels, other investors engage in more S&P 500 and VIX options trades at times when the SPX and VIX indexes are moving. The options average daily volume this month (through October 23) is more than 1.3 million for SPX options and 1 million for VIX options.
This month the closing values of the VIX rose from 14.46 on October 6th, to 29.26 on October 16th. Trading of options on the S&P 500 Index (SPX) at CBOE set a new single-day volume record on October 15 as 2.6 million contracts traded, surpassing the previous high of 2,282,029 contracts on June 20, 2013. Also on October 15, trading volume for VIX options was 1,832,732 contracts, a figure that was close to the all-time high. At CBOE Futures Exchange (CFE), trading of VIX futures set consecutive single-day volume records on October 14 and October 15, with 616,906 contracts and 791,638 (estimated) contracts traded, respectively.
INDEX OPTION VOLUME PRIOR TO THIS MONTH
The index options average daily volume so far this month is quite strong when compared to previous time periods. For example, the average daily volume for the first nine months of this year was 833,823 for SPX options and 642,115 for VIX options.
MORE GROSS PREMIUM THIS MONTH
One consequence of the higher VIX value earlier this month is the fact that some options-writing strategies could have generated more options premium. Note in the chart below, the gross monthly premium generated by the CBOE S&P 500 BuyWrite Index (BXM) on Friday, October 17, was about 1.9% of the underlying, the highest value generated in more than 20 months. The BXM Index does hold stocks and does have the potential to have monthly losses (even though the monthly gross premiums are positive).
To learn more about how index options strategies can work for you in both volatile ad calm market periods, please visit http://www.cboe.com/Strategies.