VIX at 7-Month High as $2.5 Trillion in Options Set to Expire Friday

The Volatility Index (VIX), Wall Street’s ‘fear gauge,’ printed a near 7-month high on Friday as markets brace for a $2.5 trillion option expiration day. $1.7 trillion of those options are tied to the S&P 500 index, signaling a possible rough ride for the US equities. 

After a Largely Quiet Year, Market Volatility is Now Highest Since March

The VIX index – a widely accepted measure of market volatility and investor sentiment – jumped to a 7-month high on Thursday. The abrupt surge comes as stock options tied to $2.5 trillion in market value reach their expiry date, raising concerns about a volatile period for the US equities ahead. 

VIX soared to 20.91 on October 19, the highest since late March. Often referred to as a ‘fear gauge,’ the index could continue its upward trajectory in the coming weeks. Still, investors will be particularly interested in the market’s reaction to Friday’s stock options expiration. 

Until now, the VIX remained subdued for most of the year, leading to discussions among those on Wall Street that the index may be broken. These conclusions emerged because many expected US market volatility to be significantly higher in a year, highlighted by high-interest rates, bank runs, and recession risks. 

However, there is an argument to make that the low volatility was due to the growing popularity of zero-days-to-expiration (0DTE) options, which allow traders to hedge intraday risks. Meanwhile, other analysts believe the muted VIX’s performance was simply because of the largely bullish sentiment in the equity markets this year. 

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$1.7T of $2.5T in Stock Options is Tied to S&P 500

The sharp jump in the VIX index on Friday is primarily attributed to the $2.5 trillion in stock options set to expire on the same day. 

Rocky Fishman, founder of market commentary and consulting firm Asym50, published a note demonstrating that a trillion in notional value linked to single stocks, equity indexes, exchange-traded funds (ETFs), and index futures are all scheduled to expire today. Of the total $2.5 trillion, $1.7 trillion is tied to the benchmark S&P 500 index. 

Historically, big option expiration days generally resulted in increased trading on the 16 options exchanges in the US, which can sometimes extend into the wider market, leading to more volatility. Joe Ferrara, the investment strategist at Gateway Investment Advisers, said the surge in VIX could indicate more pressure for the markets but may also drive the value of S&P 500-linked options. 

In your opinion, how will the US markets react to today’s options expiration? Let us know in the comments below.