VIX index going parabolic
There was a buying spree on (VIX) call options recently. The buy-to-open (BTO) call/put volume ratio spiked above five for the first time since just before the pandemic. Those call buyers have been spot on since the spike occurred just under two weeks ago; the VIX is up 30% in that time frame. Next, I’m going to look at past spikes to see how the stock market and VIX behaved afterwards.
Going back to 2010, there have been 33 other times that the BTO call/put ratio on the VIX spiked above five (I only consider one signal over a month time frame). The table below summarizes how the S&P 500 performed following these spikes. The second table shows typical index returns since 2010 for comparison. Stocks tended to struggle after these signals. A month after these signals, the S&P 500 averaged a loss of 1.08% with barely half of the returns positive. Compare that to the typical one-month return, which is a gain of more than 1% with 68% of the returns positive. Six months after a signal, the S&P 500 averaged a gain of 2.5%, which still underperforms compared to the usual return for the index of about 6.5%.
Going back to 2010, there have been 33 other times that the BTO call/put ratio on the VIX spiked above five (I only consider one signal over a month time frame). The table below summarizes how the S&P 500 performed following these spikes. The second table shows typical index returns since 2010 for comparison. Stocks tended to struggle after these signals. A month after these signals, the S&P 500 averaged a loss of 1.08% with barely half of the returns positive. Compare that to the typical one-month return, which is a gain of more than 1% with 68% of the returns positive. Six months after a signal, the S&P 500 averaged a gain of 2.5%, which still underperforms compared to the usual return for the index of about 6.5%.
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