Abstract
This paper investigates the predictive content of the Volatility Index (VIX) options trading volume for the future dynamics of the underlying VIX index. Using a novel data set from the Chicago Board Options Exchange, we calculate the put–call ratio based on the VIX option volume initiated by buyers to open new positions. We show that the put–call ratio negatively predicts the subsequent changes in the VIX index. The predictability is stronger during periods of elevated VIX levels and for short-dated contracts. These results support the hypothesis that informed traders use the VIX option market as a venue for their trading.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1721-1737 |
| Number of pages | 17 |
| Journal | Journal of Futures Markets |
| Volume | 42 |
| Issue number | 9 |
| DOIs | |
| State | Published - Sep 2022 |
Bibliographical note
Funding Information:We thank the editor, Robert I. Webb, Chardin Wese, Asli Eksi, participants at the 2021 Conference on Derivative Markets and 2021 Southern Finance Association conference, and seminar participants at West Virginia University for helpful comments and suggestions. Errors or omissions are our responsibility. Chen Gu acknowledges the financial support from the Shanghai Pujiang Program (No. 19PJC077) and the National Natural Science Foundation of China (No. 71973018).
Publisher Copyright:
© 2021 Wiley Periodicals LLC
Keywords
- VIX options
- information
- put–call ratio
- volatility