Options experts are saying Thursday's record volume in volatility derivatives bets may signal a dangerous problem with the size of volatility-linked trading products.
The focus is on the CBOE volatility index, a key measure of market expectations for near-term volatility as conveyed by the price of S&P 500 index options. The CBOE announced VIX options volume hit 2.56 million contracts on Thursday, a record for a single day. In addition, VIX futures volume reached 939,000 contracts, another record.
The high volume coincided with a 44 percent spike in the VIX, to 16.04, its highest daily close for the year. The VIX recently hit a record intraday low of 8.84. On Friday afternoon, it was at 14.54.
The volume in VIX "options and futures tells us that yesterday was potentially a more serious event, and validates some of what we have discussed in recent notes about the growing leverage in VIX-linked products," Macro Risk Advisors head derivatives strategist Pravit Chintawongvanich wrote in a note to clients Friday.