The information content of the volatility index options trading volume

Chen Gu, Xu Guo, Alexander Kurov and Raluca Stan

Journal of Futures Markets, 2022, vol. 42, issue 9, 1721-1737

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.

Date: 2022
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https://doi.org/10.1002/fut.22297

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