U.S. Option Trades Jump to 41 Million for Third-Straight Record

U.S. options volume jumped to a third-straight record today as stocks plunged on the U.S. downgrade and the Chicago Board Options Exchange Volatility Index, or VIX, surged the most since February 2007.

More than 41 million options on stocks, indexes and exchange-traded funds changed hands today on the nine U.S. options markets, according to a preliminary tally, said Jim Binder, a spokesman for Chicago-based OCC, which settles all trades. That topped the Aug. 5 record of 39.5 million and the 36.1 million record from Aug. 4.

“It’s a reflection of far greater uncertainty,” said Michael Khouw, director of U.S. equity derivatives trading at Cantor Fitzgerald LP in New York. “People trade equities and futures when they know what’s going to happen, and they trade options when they think they know what might happen.”

The VIX rose 50 percent today to 48, the highest level since March 2009. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index, which plunged 6.7 percent to 1,119.46 today. All 500 members fell, the first time that’s happened since Bloomberg began tracking the data in 1996.

S&P lowered the long-term credit rating of the world’s largest economy to AA+ from AAA after U.S. equity markets closed on Aug. 5.

The prior record before last week was 30.8 million on May 6, 2010, when a 20-minute rout erased $862 billion from the value of U.S. shares before stocks rebounded.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net;

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.