VIX Options Activity Signals Possible Volatility Spike

Tyler Durden's picture

Submitted by Elizabeth Harrow via,

This week, we present to you one of those interesting data discoveries that occasionally crops up in the course of our routine study of various technical and sentiment indicators. In the process of composing his weekly report to our research team, Schaeffer's Quantitative Analyst Chris Prybal noted an apparent correlation between CBOE Volatility Index (VIX) futures put option volume and the action in the S&P 500 Index (SPX). Namely, per the chart immediately below, it would seem that when VIX's 20-day cumulative put volume falls below 400,000 contracts, the S&P tends to experience some weakness.

VIX volume with SPX 0901

While VIX 20-day put volume regularly clocked in below the 400,000 threshold prior to 2013, there have been only 10 occasions since then when this low bar has been breached (limiting the study to only one signal per month to eliminate some redundancies). Upon further inspection, these troughs in VIX put volume have, in fact, served as precursors to VIX spikes, as well as some corresponding S&P weakness.

Looking out 21 days after a low-volume signal from VIX put options, the S&P is sitting on an average loss of 0.7% -- well below its average "anytime" 21-day return of 1%. Meanwhile, the VIX is up nearly 26%, on average, 21 days post-signal -- easily outstripping its average return of 2.8% for this time frame. While average returns go on to stabilize (and eventually turn positive again) for the S&P after this initial 21-day window, VIX returns don't peak until 63 sessions following the signal, when the average return arrives at 27% (compared to VIX's average 63-day return of only 4.2%). So if this pattern repeats itself in the weeks ahead, we can expect to see a short-term downturn in the S&P, accompanied by what may be a comparatively prolonged increase in the VIX.

VIX put volume 0901

Meanwhile, September tends to be a rough month for stocks already. Over the past five years, the S&P has averaged a 1.2% loss in September -- the worst of all monthly returns, on this basis.

[ZH: And don't forget everyone is on the same side of the boat again...]


So from a pure data analysis standpoint, there seems to be legitimate cause to suspect there may be some short-term weakness in stocks on the horizon -- along with an even more pronounced surge in the VIX. And while we wouldn't recommend unloading all of your shares and heading for the bunkers on the basis of what amounts to a relative handful of data points, those who prefer to play it safe might wish to avail themselves of some portfolio protection in the form of put options -- before the price to obtain that protection jolts higher.


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The Duke of New York A No.1's picture

What if Hillary becomes too sick to campain ... then what ... she sounded like she was going to cough up a lung today;




The Duke of New York A No.1's picture

Delay the election for a little while so Hillary can go to a health retreat for 3 to 6 months to heal? ... or maybe until Billary finds suitable replacment candidates ... maybe she passes out on the campain trail before a "Plan B" is put into effect.



The Duke of New York A No.1's picture

It looks like the rumours about Billarys failing health - are more than just rumours.


A great Trader once said;

"Economic History is the never ending series of episodes based on falsehoods and lies - not truths ... it represents the path of big profits" ... "The object is to recognize those the whose premise is false, ride that trend and step off before before it's discreditied".

USofAzzDownWeGo's picture

She's fine, this is all an act and the plan by the jews. Obama will stay prresident of the jewnited states of amerisrael

brada1013567's picture

And Gartman says the Fed can't raise in September.

Lore's picture

Well, that's it, then.  If Gartman says so, it must be true. 

Seriously, why do people keep dredging up that guy?

BurningFuld's picture

We keep dredging him up because he keeps sinking.

LawsofPhysics's picture

Technical analysis in a fucking casino.

Lonesome Crow's picture

You mean to say we cannot drop to 2100ish without the owners hovering?

Consuelo's picture



"...those who prefer to play it safe might wish to avail themselves of some portfolio protection in the form of put options -- before the price to obtain that protection jolts higher.


What happens when your protection fails to 'protect'...?    


Someone/s get real pregnant I suspect...

holdbuysell's picture

So, stop shorting and selling naked calls on the VXX?

Steeley's picture

Ah, to hell with it, I'm shorting both the S&P and SH..