VIX® Call Demand Near Record High Ahead of FOMC

Link to Report: Macro Volatility Digest

WHAT STANDS OUT:

• While the VIX index has fallen the last two weeks, demand for VIX options has picked up notably, particularly upside calls. In fact, January’s VIX option ADV of 938k contracts is 13% higher than last year’s already record ADV of 830k contracts. Buying of VIX upside calls has driven VIX skew to near a record high, with 2M skew (25D ratio) screening in the 99^th percentile high over the past 10 years.
• Another way of looking at it is that while the VIX 2M ATM vol has remained relatively benign at 83% (45^th percentile low), the 10-delta OTM call option is trading with a volatility almost double that, at 162% (96^th percentile high over the past decade). See chart below. Consistent with the flows we’re seeing in VIX options, traders are also pricing higher tail risk into the SPX® vol surface, with SPX put skew (3M 10D/25D ratio) steepening to the 86^th percentile high last week.
• With mega-cap Tech earnings kicking off this week, we’re seeing a meaningful bid to single stock vols vs. the index, with the spread between the two rising to near a record high 20% (as measured by the spread between VIXEQ and VIX index).

Chart: VIX Call Demand Near Record High as Tail Risks Rise

^{Source: Cboe}

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