Volatility’s Awakening Spurs Record Long Position in VIX Futures

(Bloomberg) -- Bets on market tranquility that blew up in spectacular fashion helped spark a record shift in the futures market.

The weekly commitment of traders report shows non-commercial positioning in VIX futures contracts spiked to a record net long of 85,818 contracts as of Feb. 6.

Volatility’s Awakening Spurs Record Long Position in VIX Futures

VIX futures contracts are tied to the Cboe Volatility Index, which tracks the one-month implied fluctuations in the S&P 500 Index derived from options prices. This so-called fear gauge hit 50 on Tuesday morning for the first time since August 2015, when China’s surprise devaluation of the yuan sparked turmoil in financial markets.

Exchange-traded products that allowed investors to wager on enduring calm in U.S. equities played a role in exacerbating this recent bout of risk aversion. Monday’s sharp plunge in U.S. stocks and rise in implied volatility forced these funds to buy significant amounts of VIX futures to pare their short exposure. Credit Suisse announced the redemption of its VelocityShares Daily Inverse VIX Short-Term exchange-traded note, ticker XIV, on Tuesday; more than a dozen similar products were halted for trading after suffering extreme losses.

What an about-face: the Commodity Futures Trading Commission data marks not only the biggest outright speculative long position in VIX futures on record but also the largest one-week swing. This swing was driven primarily by a reduction in shorts rather than a fresh buildup of long contracts. Non-commercial short contracts plunged by more than 40 percent to 172,440; long contracts increased by a much more mild 10 percent to 258,258.

The net long speculative positioning as a share of open interest in VIX futures jumped to 14 percent, its highest level since December 2009.

Volatility’s Awakening Spurs Record Long Position in VIX Futures

Non-commercial positioning in VIX futures had sunk to a record short level in October 2017.

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