Options are on pace to brush record volume this week. On Wednesday, total option volume was 13 million contracts -- nearly double this year's daily average. While tomorrow's expiration has certainly attributed to the increase in volume, it's safe to say the sharp selloff is what has prompted investors to turn to options for protection.
The previous four record-volume weeks have been set on quarterly or triple-witching expirations, with two of them occurring in the past two Decembers, when year-end bookkeeping drove volume despite the typically slow holiday season.
The rush to options has been most evident in the Russell 2000 iShares (IWM), which has declined some 7.5% in the past 10 trading days. The options on the small-cap ETF have logged record volume on four of the past five trading days. Yesterday's volume was another new record, as over 1 million contracts traded. And in a sign of the nervous state of investors, there were over seven puts traded for every one call.
The other big feature has been the absolute explosion in volatility as measured by the VIX. This measure of the
Index's implied volatility has shot up some 30% in the past five trading days. On Wednesday it finished at 16.20, its highest close in over eight months.
This morning it has retreated a bit, but remains above 15. The fact that the put/call ratio remains above 1.0 this morning suggests that, even as people are looking for an oversold bounce, the prevailing expectations seem to be that there is more downside to come.
Leading the most-active list are
options. A large transaction crossed the tape this morning, as the July $20/$22.50 call spread traded over 35,000 times. The trade was done at a net debit of 30 cents in what appears to be an opening purchase. This would be a cheap, limited-risk way to bet that the beleaguered chipmaker will stage a summer rally. Shares of INTC are down some 25% year to date.
have jumped $15 this morning, after the retailer posted better-than-expected earnings. The most active strike is the May $155 call, which has traded over 3,000 contracts. But despite the big 11% move, implied volatility of its options is down nearly 20% this morning.
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback;
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