What This Call/Put Ratio Is Telling Me

The VIX Light Is Yellow: Volatility Will Move.

Hey Traders,

Monday’s action certainly took some of the air out of the VIX.

It closed below 19, and is in a nice contango (futures trading subsequently higher, and above cash).

Today, I was looking through my numbers when I noticed this pretty big change in VIX options.

Check this out …

With the VIX closing below 19, there might be a light at the end of the tunnel for this recent market volatility.

However, I took some time to run through what I was seeing yesterday … 

It was in diving into the numbers that I noticed that VIX has had a big change in options trading over the last few weeks.

Call/put ratio in open interest is starting to normalize.

Throughout the pandemic, one thing that has been astounding is that puts have traded almost one-to-one with calls.

Not anymore.

Call trading is really starting to outpace puts.

Open interest in calls is now about 1.5 times that of puts:

While overall open interest is still a little light, and volume is still below where I would like to see it, the fact that calls now represent over 1.5 million more contracts than puts is nothing to sneeze at.

This means two things:

Traders are no longer playing the ‘mean reversion’ game of VIX plummeting.

Meaning put volume is starting to fall a touch.

At the same time, call traders are starting to enter the market.

This is a good thing.

When call traders are buying protection, that means they are hedging …

Hedging, believe it or not, causes volatility to drop.


Because traders are protected from sell-offs.

Another slight contributing factor to VIX call buying exceeding put buying can also partially be attributed to iPath Series B S&P 500 VIX Short Term Futures ETN (Ticker: VXX) and ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY).

UVXY in particular is about to have a reverse split of 10-to-1 on Wednesday (I’ll talk about this later in the week).

In short though, if I think implied volatility (IV) is going to drop, UVXY puts (post-reverse split)  are a desirable way to play this opinion.

It could be that some powder of vol traders are lying in wait on the sidelines for Friday when options in UVXY list. We will just have to wait and see.

The VIX Light Is Yellow: Volatility Will Move.

Your Only Option,

Mark Sebastian

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.