The VIX Is at a Two-Year Low, But Volatility Trading Is Surging

  • Volume of futures and ETNs betting on swings jumps to record
  • Volatility isn’t pricing in Europe vote risks, strategists say

The VIX is trading near depths last seen in 2014, but that doesn’t mean the equity-volatility market is laying low.

Investors are piling into securities from futures to exchange-traded notes betting on stock swings, even as the CBOE Volatility Index heads for its biggest annual decline since 2009. A gauge tracking expectations for turbulence in the next three months hit the highest level since August 2012 relative to the VIX, which measures bets for the coming month. Among themes that strategists recommend hedging for in 2017: a new administration in the U.S. and elections in Europe.

  • The VIX slumped 15 percent in December to its lowest level since July 2014 on Wednesday, while the CBOE S&P 500 3-Month Volatility Index slipped just 6.3 percent.
  • Volatility trading has reached new peaks. The volume of VIX futures has climbed to more than 212,000 contracts on average each day this year, surpassing the previous record of about 190,000 in 2014.
  • The number of shares outstanding on the ProShares Ultra VIX Short-Term Futures and the VelocityShares Daily 2x VIX Short Term ETN -- which generate twice the daily return of a gauge tracking CBOE Volatility Index futures -- has soared by more than 1,000 percent this year, with trading surging more than sevenfold. The iPath S&P 500 VIX Short-Term Futures ETN has attracted the most money, amassing almost $2 billion in inflows.
  • In Europe, a record volume of VStoxx Index futures in December pushed the number of annual trades to a daily average of 40,000, almost 40 percent more than last year. Strategists say current implied volatility isn’t pricing in risks related to next year’s French election.
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