Dear Viewers,
NEW YORK Nov 10 Options traders who had bet that stock market volatility would plummet after the election made outsized gains even if Donald Trump's win seemed to take financial markets by surprise.
The CBOE Volatility Index, the most widely followed gauge of near-term investor anxiety, collapsed on Wednesday, in the largest one-day decline in more than five years.
While a drop in expectations for stock market volatility after a big news event is not unusual, the intensity of this pullback was.
"That's a truly remarkable turnaround in less than one full trading day," said Ophir Gottlieb, chief executive of Los Angeles-based Capital Market Laboratories.
VIX November futures contracts roared to a four-month high of 23.46 on Tuesday night as the results of the election began to favor Trump, counter to earlier expectations that the victor would be Democrat Hillary Clinton.
On Wednesday, the VIX closed down 23 percent at 14.38 and the November futures contracts fell 37 percent from their session peak.
The collapse in volatility was good news for options traders who went against the grain and bet on a decline in stock market volatility even as the options market grew more jittery as Election Day approached.
Even before Election Night, some traders were already betting that volatility would return to pre-election levels, strategists at BNP Paribas said in a note on Thursday.
On November 4, a record 769,214 VIX puts were traded, according to the Chicago Board Options Exchange. Since the VIX usually moves inversely to the stock market and puts offer the opportunity to profit from a decline in the VIX, owning a VIX put is a bet on lower volatility.
The collapse in the VIX makes the value of these puts jump.
For instance, November VIX puts with a strike price of 17 traded as low as $1.05 on Friday. On Thursday, these contracts traded for as much as $3.
On Wednesday, these puts traded in heavy volume, including a large trade were a trader appeared to be selling 26,500 of the contracts for $2.25. While it is not clear when these contracts were bought, they traded for an average price of $1.66 in the two weeks before the election on November 8. Thanks.
NEW YORK Nov 10 Options traders who had bet that stock market volatility would plummet after the election made outsized gains even if Donald Trump's win seemed to take financial markets by surprise.
The CBOE Volatility Index, the most widely followed gauge of near-term investor anxiety, collapsed on Wednesday, in the largest one-day decline in more than five years.
While a drop in expectations for stock market volatility after a big news event is not unusual, the intensity of this pullback was.
"That's a truly remarkable turnaround in less than one full trading day," said Ophir Gottlieb, chief executive of Los Angeles-based Capital Market Laboratories.
VIX November futures contracts roared to a four-month high of 23.46 on Tuesday night as the results of the election began to favor Trump, counter to earlier expectations that the victor would be Democrat Hillary Clinton.
On Wednesday, the VIX closed down 23 percent at 14.38 and the November futures contracts fell 37 percent from their session peak.
The collapse in volatility was good news for options traders who went against the grain and bet on a decline in stock market volatility even as the options market grew more jittery as Election Day approached.
Even before Election Night, some traders were already betting that volatility would return to pre-election levels, strategists at BNP Paribas said in a note on Thursday.
On November 4, a record 769,214 VIX puts were traded, according to the Chicago Board Options Exchange. Since the VIX usually moves inversely to the stock market and puts offer the opportunity to profit from a decline in the VIX, owning a VIX put is a bet on lower volatility.
The collapse in the VIX makes the value of these puts jump.
For instance, November VIX puts with a strike price of 17 traded as low as $1.05 on Friday. On Thursday, these contracts traded for as much as $3.
On Wednesday, these puts traded in heavy volume, including a large trade were a trader appeared to be selling 26,500 of the contracts for $2.25. While it is not clear when these contracts were bought, they traded for an average price of $1.66 in the two weeks before the election on November 8. Thanks.
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