Despite the fact that the average daily closing value of the CBOE Volatility Index® (VIX®) is about 11.5 so far this year, VIX futures and options both had record days for volume and for open interest this month (see tables/charts below).
Open interest records: VIX futures hit a new record for open interest with more than 673,000 contracts on Aug. 7, and VIX options reached a new record for open interest with 14,783,380 contracts open on Aug. 15. Volume records: Aug.10 was an all-time record volume day for both VIX futures (volume of 942,109 contacts) and for VIX options (volume of 2,538,121 contracts).
This year many financial professionals have raised the issue as to whether the VIX level appears to be “low” compared to the levels of worldwide financial insecurity. At the 70th CFA Institute Annual Conference in May 2017, Richard Thaler of the University of Chicago opined that the “low” level of the VIX Index was one of the biggest financial mysteries of our time. As shown in the chart below, in 2017 the averages of the daily levels were 11.5 for the VIX Index and only 7.1 for the 30-trading-day historic volatility of the S&P 500 Index. Compared to the SPX historic volatility, the VIX Index has not necessarily been “low” this year.
The fact that the VIX Index has been higher than SPX historic and realized volatility means that there has been a volatility risk premium. Some professional money managers who consistently sell index options like to see the volatility risk premium. Benchmark indexes that take advantage of the volatility risk premium (such as the CBOE S&P 500 PutWrite Index (PUT) and the CBOE S&P 500 30-Delta BuyWrite Index (BXMD)) generated relatively strong risk-adjusted returns over three decades, according to a research paper by Wilshire - Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016).
