Markets

VIX volume rises fourfold, sets record

The market is getting jittery, and traders are turning to derivatives for protection.

Almost 789,000 futures contracts traded on the CBOE Volatility Index last month, popularly known as the VIX. That marked a fourfold increase from a year ago and a 1.5 percent gain over January, according to a statement released yesterday by the CBOE Futures Exchange.

The VIX, which measures the cost of options on the S&P 500, has been growing in popularity as a hedging instrument because it tends to spike quickly when stocks fall. That makes it easier to use than buying puts on the S&P, which require that specific strike prices be selected and positions get rolled as prices climb.

Futures on the instrument have existed since 2004 but seem to have gained ground in the last year--especially after the May 6 "flash crash." Several new related funds have been introduced as well.

February was also a busy month for options overall. Options Clearing Corporation reported that more than 357 million contracts traded, up 35 percent from a year earlier. That followed a 22 percent gain in January.

Volume in stocks has been unremarkable by contrast, averaging about 3 billion shares in the S&P 500 last month--down about 29 percent from a year earlier.

The growth of options and volatility futures, contrasted with lower equity volumes, reflects how investors increasingly use derivative instruments to take positions and to hedge risk. (See our daily Volatility Sonar report)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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