As the VIX, a key measure of market volatility, fell to its lowest level in more than three years, traders took a big defensive position against a rise in the fear gauge this summer.
About 100,000 CALL contracts on the VIX 23 expiring July 19 were traded early Thursday. They were likely bought as a bet on higher volatility in the S&P 500 ahead of inflation data and the Federal Reserve’s interest rate decision coming next week, or to cover an existing short position in the index.
The VIX — a measure of how expensive S&P 500 options are — fell to 13.53 on Thursday, its lowest intraday level since Feb. 14, 2020. More than a 60% jump in the VIX would be needed , to pay the bet. The index last closed above 23 in mid-March during the regional banking crisis.
The taking of such positions by large traders is a signal of caution. Key data is expected next week and volatility has the potential to spoil any position from here. Today is Friday and there will be position closing and positioning ahead of next week. The VIX has already retraced some of the decline, which supports the idea of an increase in volatility ahead.
Dealer Anatoliy Pavlov