The Volatility Trades Gets Crowded

From Bloomberg:

Investors are flocking to the options market at an unprecedented rate to place bets on Standard & Poor’s 500 Index volatility, a sign they see risks increasing after the calmest election year in two decades.

Outstanding contracts tied to the Chicago Board Options Exchange Volatility Index reached 9.01 million on Oct. 16, the highest level ever, according to data on open interest compiled by Bloomberg. Calls that pay should the VIX increase have almost tripled this year to 4.38 million, while puts climbed 52 percent to 2.14 million, the data show.

Election Year

Traders are snapping up VIX options after the gauge, which moves in the opposite direction of the S&P 500 about 80 percent of the time, lost 22 percent in 2012 through yesterday. That’s the largest annual drop for any election year since it was created in 1990, according to data compiled by Bloomberg. The VIX has climbed 22 percent since Oct. 18 as the equity gauge retreated 3.3 percent.

“The market is uncertain of the outcome of the election,” Andrew Greeley, a senior managing director at Stamford, Connecticut-based Acorn Derivatives Management Corp., which manages more than $500 million in volatility assets, said yesterday. “It will be range-bound until it is decided. Soon after the election, we could experience a stronger move.”

Posted by on October 25th, 2012 at 2:37 pm


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