Wall Street's most closely watched index of market anxiety jumped on Friday and options volume on the index soared to a near 4 year high as a growing crisis at SVB Financial weighed on stocks.
The Cboe Volatility Index , an options-based indicator
dubbed the Wall Street "fear gauge," jumped as much as 6.36
points to 28.97, before closing up 2.19 points at 24.8.
VIX options, used by traders to place wagers on whether
stock market volatility will rise or fall in coming weeks and
months, changed hands in heavy volume, with some 2.36 million
contracts traded. That was the most since early May 7, 2019,
when escalating trade tensions between the United States and
China spooked investors.
Much of the volume on Friday was linked to traders booking
profits and adjusting positions to account for the recent market
moves, data showed.
Betting on upside in the VIX has not been as profitable
as many traders had hoped over the past year, despite a steep
selloff in the stock market. Some investors say the reason is
that while volatility has been greater than normal, the market's
decline was stretched out over a period of weeks and months,
rather than a sudden surge of selling pressure.
That gradual pick up in volatility has kept the VIX below the 40 mark, a level associated with high fear in the market.
On Friday, traders were quick to take advantage of the rare surge in volatility.
"The VIX has definitely, over the past year, not
performed as people thought it would," said Matthew Tym, head of
equity derivatives trading at Cantor Fitzgerald. "Finally, on a
day like this people who have VIX positions on are rolling
because they finally made some money in the VIX product."
Rolling involves closing an existing position and realizing gains or losses, while replacing the closed contracts with new ones. Friday's surge in the volatility index came as Wall Street's main stock indexes fell on Friday as investors fretted over the health of U.S. banks after regulators had to close a high-profile lender to the technology sector. (Reporting by Saqib Iqbal Ahmed; Additional reporting by Laura Matthews; Editing by Ira Iosebashvili and David Gregorio)
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