Options Traders Brace for Stock-Market Crash as Demand for VIX Calls Surges
Monday, Mar 3, 2025 1:45 pm ET
6min read Options traders are bracing for a potential stock-market crash, as the latest data from cboe global markets shows a surge in demand for deep out-of-the-money call options tied to the cboe Volatility Index (VIX). Known as the "fear gauge," the VIX typically spikes when markets are in turmoil. The spike in demand for VIX calls signals that traders are increasingly concerned about a market crash.
The surge in demand for VIX calls coincides with a challenging two-week run for popular U.S. stock-market gauges like the S&P 500 and Nasdaq Composite. Traders appeared to monetize put options tied to the S&P 500, pushing many of those contracts into the money. However, demand for further out-of-the-money contracts against those that are closer to paying off, known as "put skew," eased somewhat. This suggests that while traders are taking profits from put options, they are still concerned about the potential for a market crash.
At the same time, net customer buying of deeply out-of-the-money VIX calls soared to nearly 250,000 contracts, the largest one-day reading since May 4, 2024. This indicates that traders are actively seeking crash protection. The VIX briefly surged above 50 in the premarket session on August 5, 2024, when a U.S. growth scare and the sudden unwind of the Japanese yen (USDJPY) carry trade hammered global markets. Although the index finished the day around 38, the spike suggests that traders are concerned about a potential market crash.
The VIX hasn't finished above 50 since March 2020, according to factset data. The index finished Friday just below 20, a level that is roughly on par with its long-term average. For volatility traders, the 20 level on the VIX carries a lot of weight: Above 20, markets are said to be unsettled; below it, they're seen as calm.
U.S. stocks were struggling on Monday after the latest manufacturing report from the Institute of Supply Management showed activity contracted in February. That helped send the Atlanta Fed's GDPNow forecast for first-quarter GDP to minus 2.8%. If that comes to pass, it would mark the first quarterly contraction in U.S. economic activity since early 2022.
index include s&p 500(503)recent's closing price(6148)index include s&p 500;recent's closing price(503)
Index  | Interval Closing Price(USD)2025.02.28-2025.03.03  |
|---|---|
| S&P 500 | 7.27K |
| S&P 500, NASDAQ-100, Nasdaq | 5.01K |
| S&P 500 | 3.48K |
| S&P 500 | 1.89K |
| S&P 500, NASDAQ-100, Nasdaq | 1.37K |
| S&P 500 | 1.37K |
| S&P 500 | 1.37K |
| S&P 500 | 1.29K |
| S&P 500, NASDAQ-100, Nasdaq | 1.06K |
| S&P 500 | 1.01K |
Ticker |
|---|
| NVRNVR |
| BKNGBooking Holdings |
| AZOAutozone |
| FICOFair Isaac |
| ORLYO'Reilly Automotive |
| TPLTexas Pacific Land |
| TDGTransDigm Group |
| MTDMettler-Toledo |
| COSTCostco Wholesale |
| GWWW.W. Grainger |
View 503 results
The S&P 500 was off by 10 points, or 0.2%, while the Nasdaq Composite was off by 91 points, or 0.5%, in early-afternoon trading. The Dow Jones Industrial Average DJIA was down by 50 points, or 0.1%.
Cboe also revealed that trading activity in so-called "zero day" options tied to the S&P 500 index soared in February to its highest level on record. Trading in contracts on the verge of expiring accounted for 56% of activity in all S&P 500-linked contracts last month. This suggests that traders are actively managing their portfolios and potentially hedging against a market crash.
In options trading, calls are bullish contracts that would pay off if the underlying asset or index were to rise past a certain level, known as the "strike price." Puts, on the other hand, represent bearish bets or hedges that would pay off if the underlying asset or index falls below the strike. In the case of contracts tied to the VIX, calls would most likely pay off if the S&P 500 were to see a sudden sharp drop. Given that the VIX is a volatility gauge, it typically spikes when the market is in turmoil.
In both cases, the underlying would need to move beyond the strike price by a wide enough margin to compensate the contract holder for the premium paid. Traders should carefully consider their risk tolerance and investment horizon when deciding whether to buy options for hedging purposes. While options can provide valuable protection against market downturns, they also come with their own set of risks and costs.
OPCH Trend
In conclusion, the surge in demand for VIX calls suggests that options traders are increasingly concerned about a potential stock-market crash. While the VIX has not yet reached the levels seen during previous market crashes, the spike in demand for VIX calls indicates that traders are taking steps to protect their portfolios. Investors should stay informed about market developments and consider their own risk tolerance when deciding whether to engage in options trading for hedging purposes.
