By ? Bloomberg News
VIX Bets Surge Amid Biggest Stock Swings Since October
Traders trying to protect themselves from the wildest fluctuations in U.S. stocks since October are turning to advanced weaponry: options on options.
More than 1 million contracts tied to moves in the Chicago Board Options Exchange Volatility Index have changed hands each day since Dec. 10, the most since mid-October, data compiled by Bloomberg show. Contracts on the VIX amount to bets on stock volatility that pay off when swings in shares are at their most violent.
Violent swings have been the rule lately, with the Dow Jones Industrial Average moving almost 300 points on Dec. 15 and 360 points the following day. The VIX is at the highest since Oct. 16 as a slide in crude prices and signs of a worldwide economic slowdown ripple through financial markets. Demand for VIX options shows investors are trying to get the most bang for their buck from equity hedges after entering the month with close to the fewest in two years.
?This move has caught a lot of people off guard,? Dan Deming, managing director at Equity Armor Investments, said by phone from Chicago on Dec. 12. ?There were too many people on one side of the market and a lack of protection. Then you see this big scramble.?
About three-quarters of options changing hands each day on the CBOE volatility gauge represent wagers it will rise, data compiled by Bloomberg show. Those contracts are effectively bets against the Standard & Poor?s 500 Index, which moves in the opposite direction of the VIX about 80 percent of the time.
To Read More Click Here.