As Bloomberg noted on Monday, a significant number of options and futures traders are betting on some semblance of market disruption come September.
Among the tell-tale signs, the news agency noted VIX futures were above the level of the underlying index — suggesting investors expect fluctuations to widen and stocks to retreat. Specifically:
VIX futures expiring in September were 3.29 points higher than the index on Aug. 7, and last month were as much as 5.91 points higher, a record gap for so-called second-month contracts. Last week’s spread was comparable to the one in August 2008.
Which means traders have been betting for a while that market volatility would only return come September.
Over in VIX options trade, meanwhile, open interest in calls — bets that see the buyer profit when the underlying increases in value — significantly outnumbers that in puts, which are bets that see the buyer profit when the underlying decreases in value.
Here’s the latest picture from the CBOE on Tuesday:
And if you thought it was just the VIX depicting that sort of September-onwards angst, you’ll find the same theme runs through other securities too.
For example: open interest (OI) in SPDR S&P 500 ETF put options outweighs calls 8,498,390 to 4,416398; OI in SPDR Gold call options (a bet that the price will go upwards) outnumbers puts 1,662,408 to 819,073; OI in Nasdaq puts outweighs calls 324,686 to 231,542; and OI in DJIA index put options outweighs call options 246,305 to 214,598.
Over at the Nymex, meanwhile, the largest slice of September WTI options open-interest is dedicated to $40 puts:
To compare, the largest call position reflects open interest of 13,385 and is positioned on $80 per barrel — although those options do expire next week, so there’s not that much time for them to get into the money.
Related link:
VIX Signals S&P 500 Swoon as September Approaches - Bloomberg
Econophysicist Predicts Date of Chinese Stock Market Collapse – MIT arXiv blog
Will CDS spreads tumble in February? – FT Alphaville