Sentiment is decidedly different Thursday compared to earlier this week. Total options volume was about 9 million contracts Monday and the lowest levels of 2012. Then only 8.2 million puts and calls traded Tuesday. Volumes improved to 9.5 million yesterday, but still below the recent average. Today, however, 2.2 million calls and 2.3 million puts have traded across the exchanges through 11:00 EDT. Projected volume is almost 13 million contracts. Meanwhile, VIX continues to move higher. The volatility index is up .94 to 18 and has rallied 33.8 percent in less than two weeks despite low levels of actual volatility. The 30-day historical volatility of the S&P 500 is only 9 percent (as of yesterday). Therefore, VIX is double S&P 500 realized volatility — suggesting that the market is pricing-in the possibility for more volatile action heading into Fed Bernanke’s Jackson Hole speech tomorrow and when many participants return from vacation after the Labor Day holiday.
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Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.