Are VIX Option Players Bored Post-Fed?

Interest in CBOE Volatility Index (VIX) options has dwindled in the fourth quarter, with put open interest now sitting in territory not charted in more than five years, and call open interest tumbling to near-term lows of its own. Does this mean volatility traders are bracing for a boring 2016? 

In mid-September -- less than a month after the late-August swoon sent the "fear gauge" to six-year highs, and about a month prior to the highly anticipated October Fed meeting -- VIX put open interest peaked at 4.33 million contracts, per Trade-Alert. In the subsequent three months, VIX put open interest has plummeted more than 75%, breaching 1 million contracts on Dec. 17 -- the lowest reading since August 2010, according to Schaeffer's Quantitative Analyst Chris Prybal. This echoes second-half declines in 2014 and 2011 -- the comparison du jour.

But does that mean traders are rushing to buy VIX calls? Not exactly. After touching a multi-year high north of 9 on Nov. 30 -- before the December Fed meeting and the massive expiration of VIX options -- the VIX 10-day buy-to-open call/put volume ratio dropped roughly 66%, and sat at 2.58 on Dec. 15. In fact, VIX call open interest is now flirting with eight-month lows in the 3.2 million range -- a drop of more than 50% from its peak of 7.43 million on Aug. 24.

Although retail advisors, active investment managers, and equity option traders appear more cautious than this time a year ago -- as noted by Schaeffer's Senior VP of Research Todd Salamone in this week's Monday Morning Outlook -- it doesn't seem Wall Street is rushing to gamble on a VIX surge... or a VIX anything, considering VIX open interest has plummeted across the board. Perhaps with the Fed rate hike in the rearview mirror, and the S&P 500 Index (SPX) essentially calling 2015 a wash (despite big daily moves), investors may just feel that volatility, once the "hot trade," is no longer as compelling since the Fed pulled the trigger.