Oct. 29 (Bloomberg) -- Options trading on the benchmark gauge of U.S. stock volatility dropped to the lowest level this year as investors backed away from bets that economic and political turmoil will whipsaw equities.
Volume on the Chicago Board Options Exchange Volatility Index fell to 161,436 contracts yesterday, the least since Dec. 24, when the market was open for half a day, according to data compiled by Bloomberg. For a full day, that’s the lowest level in almost two years and compares with a single-day record of 1.78 million contracts on Oct. 8. The gauge known as the VIX has fallen 20 percent this month.
Investors are shrugging off concerns after Congress voted Oct. 16 to raise the U.S. debt limit and weakening economic data boosts speculation that the Federal Reserve will maintain stimulus. Earlier this month, traders who piled into exchange- traded funds that profit with rising stock swings saw their bets backfire for the fifth time this year.
“The low volumes are basically reflecting the underlying sentiment,” Frederic Ruffy, a Chicago-based senior options strategist at Trade Alert LLC, wrote in an e-mail yesterday. “There’s not much fear out there. Probably a lot of people tired of seeing all their VIX upside calls expire worthless every month.”
The S&P 500 has risen in 12 of the past 14 sessions as companies beat earnings estimates and economic reports signaled the U.S. economy isn’t expanding fast enough to withstand a reduction in stimulus. The VIX, which moves in opposite direction of the equity gauge about 80 percent of the time, is down 26 percent this year. It fell 0.1 percent to 13.30 at 11:36 a.m. in New York.
VIX options volume has averaged about 587,000 contracts a day this year, according to data compiled by Bloomberg.
There were 2.45 million outstanding VIX puts for 4.54 million calls as of Oct. 25, data compiled by Bloomberg show. The ratio of puts-to-calls is 0.54-to-1, near the highest level since July.
Traders this year have increased bets on securities linked to U.S. equity volatility. The shares outstanding on the iPath S&P 500 VIX Short-Term Futures ETN have almost tripled to 91.6 million shares this year, data compiled by Bloomberg show. Last month, total shares reached a record 107 million. The ETN is the most-traded security linked to VIX futures, with an average volume of 56.7 million shares changing hands on average in the last 30 days, the data show.
The VIX ETN has slumped 59 percent to $12.91 this year, reaching an all-time low on Oct. 25.
--Editors: Lynn Thomasson, Jeff Sutherland