Traders bet Wall Street's 'fear gauge' will double in a month


That’s the prediction options traders are making at the moment with bets on future moves in the CBOE Volatility Index, or VIX.

The index – often referred to as Wall Street’s “fear gauge” – is a measure of how much investors expect the S&P 500 to swing over the next 30 days. It’s been hanging near its lowest level for the year for much of August, as US indices have eked out new records but made few big moves. The S&P 500 hasn’t closed up or down at least 1% since July 8.

But traders think that may change within weeks. On August 12, traders piled into call options expiring in September on the VIX – essentially betting that the amount of volatility in the S&P 500 will rise the next few weeks.

Call options give traders the right to buy an option at a particular price, the strike, by the option’s expiration, while put options give traders the right to sell the option at the strike by expiration.

As of 12:45pm ET on August 12, traders had bought 313,000 calls on the VIX, 1.5 times more than the daily average, according to options data provider Trade Alert. In comparison, they took out just 83,000 put options.

Two of the top trades hinge on the VIX rising to at least 20, nearly double its current level, by mid-September. Other traders were even more confident, placing bets that the VIX would rise to as high as 24. For reference, the last time the VIX broke through the 20 threshold was immediately after the UK’s Brexit vote to leave the European Union.

This article was published by WSJ MoneyBeat

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