Schaeffer's Top Stock Picks for '25

VIX Call Buying Could Signal More Choppiness to Come

The S&P 500 tends to struggle when VIX call buying sees dramatic spikes

Senior Quantitative Analyst
Apr 27, 2022 at 8:25 AM
facebook X logo linkedin


There was a buying spree on Cboe Market Volatility index (VIX) call options recently. The buy-to-open (BTO) call/put volume ratio spiked above five for the first time since just before the pandemic. Those call buyers have been spot on since the spike occurred just under two weeks ago; the VIX is up 30% in that time frame. Next, I’m going to look at past spikes to see how the stock market and VIX behaved afterwards.

IotW Chart 1 0427

VIX Call Buying Spikes 

Going back to 2010, there have been 33 other times that the BTO call/put ratio on the VIX spiked above five (I only consider one signal over a month time frame). The table below summarizes how the S&P 500 performed following these spikes. The second table shows typical index returns since 2010 for comparison. Stocks tended to struggle after these signals. A month after these signals, the S&P 500 averaged a loss of 1.08% with barely half of the returns positive. Compare that to the typical one-month return, which is a gain of more than 1% with 68% of the returns positive. Six months after a signal, the S&P 500 averaged a gain of 2.5%, which still underperforms compared to the usual return for the index of about 6.5%.

IotW Chart 2 0427

Since stocks tended to underperform after these signals, it’s not a surprise that the VIX moved significantly higher on average. A month after a signal, the VIX has been higher by about 30% on average. After that month, the VIX tends to hang around that elevated level based on the three and six-month returns having a similar average return.

IotW Chart 3 0427

VIX is Above 20 

The recent signal is abnormal because of the level of the VIX. On the date of the recent call-buying signal (April 14), the VIX closed at 22.70. It’s the only signal out of 34 which occurred with the VIX above 20. The signals tend to happen with the VIX just above 13. The table below shows the 10 signals with the highest VIX reading. Nothing jumps out to me about these returns compared to the returns after other signals, but VIX call buyers might require more conviction for their trader given the already high VIX levels.

IotW Chart 4 0427

Finally, here are the VIX returns after the signals that occurred with an elevated VIX. Compared to other VIX returns after a signal, the VIX is more likely to fall (the percent positive is lower) but its spikes tended to be much higher (higher average return).

IotW Chart 5 0427

 
 

Which of These SUB-$5 Stocks Could 26x From Here? (AD)

He called a rare 11x on Tesla…

Then he called a 26x on Workhorse…

Then an even rarer 35x on Nio Inc…

Now Tim Bohen says these 5 tiny “America First” stocks are next up in 2025.

They’re trading for less than $5 right now.

But thanks to Elon & Trump’s new alliance…

They could be off to the races in Trump’s first 100 days.

And right now for a limited time…

You can get the names & tickers for just $1 here. (AD)

10 Stock Picks FREE
 
 

Featured Articles from Trusted Partners:

🚀 One Stock Pick Could Change Everything in 2025
What if one stock pick could define your success next year? Get 10 expert-vetted stocks set for 2025—plus 5 bonus picks to watch now. Get the Report →

🆕 New Options Need New Trading Strategies
Zero-DTE options are the newest (and hottest) options to trade.  Professional traders have rushed into the market and are making a mint.  Don’t get left behind - learn all about these options, how to trade them, market setups to profit from, plus much more. Download now →

👀 Revealed: 3 Defensive Stocks for Your Portfolio
Worried about the market? This free report reveals 3 under-the-radar defensive stocks for uncertain times in any kind of economy.

 

 
 

FREE Report Download

 

Follow us on X, Follow us on Twitter