VIX Options Volume Hits All-Time High As Stock Speculators Risk Record Amount On Continued Calm

Tyler Durden's picture

A record 2.61 million options on the VIX traded on Monday, surpassing a previous peak reached in August.

Shockingly, Bloomberg reports that the activity appeared to be led by one investor, who rolled over a massive bet on a return in market turbulence to the end of the year.

Shortly after Monday’s market open, an investor rolled over a position of more than 486,000 Oct. 25 calls to December.


Monday’s trade was effectively an extension of a bet that volatility will more than double by the end of the year -- the wager was initiated in July but that didn’t come to fruition since the VIX gained only 2.5 percent in the period.


While the trade was big -- it accounted for almost half of Monday’s call volume and 11 percent of the total calls outstanding -- wagers that the VIX will rebound have multiplied in recent weeks as shorting volatility has lost some of its appeal.

The VIX, which finished last week at a two-month low, climbed as much as 17 percent on Monday as North Korea’s foreign minister escalated war talk, and as we noted previously, expectations for future VIX uncertainty have never been higher relative to the admittedly low level of VIX itself...

And while uncertainty remains extreme, speculators have never been more short VIX and therefore convinced of the persistence of market calm.

As Dana Lyons details, the proliferation in exchange traded products (ETP’s) has certainly marked a new era of investment accessibility by the masses. Individual investors now have vehicles by which to gain exposure to all sorts of markets that were previously difficult for them to access. One of the byproducts of this boom has been an explosion in futures interest as that market is vital in providing liquidity — directly or indirectly — for many of the new ETP’s.

One class of ETP’s that has seen an explosion in its underlying futures market is stock volatility. Interest in volatility-related instruments, e.g., the “VIX”, has seen a parabolic increase in recent years. For example, just 5 years ago, the largest ever net-short position by Non-Commercial Speculators in VIX futures was around -30,000 contracts. By comparison, this past week, we saw VIX Speculators’ net-short position spike to a record of more than -170,000 contracts.


One imponderable surrounding this data point and others associated with the ETP proliferation is the unintended consequences of such a boom in speculation, both on the futures side and on the ETP side. The ETP era has yet to really experience a significant bout of adversity in the financial markets. In fact, the recent period has been among the calmest ever across asset classes — no doubt contributing to the data point in question. We admit to harboring some concern about the stability of markets overall, not to mention the financial well-being of individuals involved in these new markets, should significant turbulence strike.

The other obvious point of interest regarding the chart and data point is its present context or message. We wrote about it the last time we noted a record VIX Speculator net-short position in late June (just days before the VIX jumped by some 50% on an intra-day basis).

Our thoughts are the same now as they were in that post:

“Once again, futures Speculators are known as “dumb money”, not because they are always wrongly positioned — far from it. However, at positioning extremes, and at key turning points in the underlying markets, they are typically off-sides.

Presently, we cannot say that volatility is at a turning point, i.e., about to surge higher. We won’t know that until after the fact. Additionally (and, importantly), we cannot say that stock prices are about to collapse due to record low volatility levels. Volatility reached record low extremes in the mid-90′s, just prior to a historic boom in stock prices (FYI, a repeat of that occurrence is decidedly NOT our expectation).

What we can say is that Speculators are holding an extreme short position, by historical standards. Now, extremes can always get more extreme. However, history tells us that once these investors all move to one side of the boat, like the “herd” in any market, they reliably end up “in the water”, eventually.

Therefore, while the market calm may persist indefinitely, don’t expect these folks to lead you to safety before the next storm hits.”

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If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. Considering what we believe will be a very difficult investment climate for awhile, there has never been a better time to reap the benefits of our risk-managed approach.

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Uncle Sugar's picture

Everybody to the same side of the boat.  This with end well.

Silvery Dan's picture

Pull the fucking rug already!!!

kahplunk's picture

Hard to pull when they put 16penny nails in the mofo

thefinn's picture

Cannot afford rugs in weimerica, we just throw tals on the floor.


SloMoe's picture

Oh, come on. I'ts not like Target Store managers are trading these instruments...

Son of Captain Nemo's picture

For anybody even vaguely committed to pulling their heads out of their own asses to analyse something other than the "knee" vs. "standing" unity controversy in NFL football and why this ( is happening...

You only need to read THIS ( to understand WHY the VIX and Dollar$$$ is on the verge of TOTAL "sweet" collapse by the end of next month if an injection of "asset classes" from Russia and China as THE NEXT RANSOM PAYMENT doesn't come bouncing through Yankee Jewdle's door RIGHT QUICK!!!

NoDebt's picture

Wasn't the world supposed to end like... a couple days ago already?


Son of Captain Nemo's picture

I actually would have said pre-Russian involvement Syria post Maidan coup 2014!...

Who would have thunk the American financial engine could keep itself going this long after that one with threats in every direction to loot from everyone else that doesn't simply hand it over to "Yankee Jewdle"?!!!

City_Of_Champyinz's picture

NoDebt, that clown 'rolled over' his call until October.  Same day I believe, same outcome assured...

iconic's picture

"What we can say is that Speculators are holding an extreme short position, by historical standards. Now, extremes can always get more extreme. However, history tells us that once these investors all move to one side of the boat, like the “herd” in any market, they reliably end up “in the water”, eventually."


Big problem for sellers is 4Q almost always ends higher. With the way this year has been going, hard to believe anything else.

Still, for a short term trader, any new highs are easy money for shorts. It's the part at the 'lows' that is the hard part (e.g. right now 2485 DEC SP 17). Yes, you got your 10 handles ~2500, maybe 100-150 on the DOW (NASDAQ has been much better to shorts lately), but once they break to the daily MAs, or wherever, the masses of buyers come rushing in.

Hard to blame them. That has been the money trade for years.


thefinn's picture

Self-fulfilling prophecy indeed lol


Iconoclast421's picture

Market literally hasnt moved in 11 days. My indicator is on track to produce the sell signal in 3.1 days as of right now. But it is also close to producing a buy signal which would extend the duration of this rally tothe middle of october.

Dickguzinya's picture

Does that mean your RSI is at 50?

Fatso's picture

On 8/17 we got a pull back in XIV.  This was a gift from the gods.

XIV is like the erection that lasts more than 4 hours, leading to an emergency room visit.

It's going to 100.  Then it's going to 120.