Traders Profit from VIX Call Options Amidst Global Tech Selloff
Last week's surge in Cboe Volatility Index (VIX) call options protected traders from the global tech selloff that wiped out $400 billion in Nvidia Corp.'s market value alone.
Heavy buying of over 200,000 lots of February 22 and 23 calls, when VIX dipped below 15, fueled the demand for calls. This buying resulted in a near-record skew, with call premiums betting on VIX gains significantly higher than put premiums.
Monday saw VIX, known as "Wall Street's fear gauge," surge above 22, prompting traders to acquire S&P 500 options for protection against further declines. Concerns over DeepSeek's threat to U.S. AI dominance weighed on markets.
Despite President Trump's comments and the Federal Reserve's upcoming rate decision, traders had previously priced in minor fluctuations in tech giants' earnings projections.
"VIX call buying last week was driven by low volatility," explained Chris Murphy of Susquehanna International Group. "Traders took advantage of this."
With the broad market downturn, some traders are bottom-feeding by selling puts, betting that the S&P 500 will not fall below 6,000 after dropping as much as 2.3%.
"Significant 0DTE put selling occurred at the 5,900 SPX level this morning," said Brent Kochuba of SpotGamma.