Bets on stock market volatility going up, down, or sideways are through the roof

Options tied to the VIX Index, a measure of the expected 30-day volatility for the S&P 500, are soaring as the benchmark US stock index sinks, erasing its gains since the November election. As of noon ET, more of these derivatives have already changed hands than any day since September 5.

I love writing about options because they have all the ingredients you need to write a compelling markets story: there’s either an element of fear, greed, or complacency coupled with a bet that something will or won’t happen by a certain point in time.

Options tied to the VIX Index, which is commonly known as Wall Street’s “fear gauge,” are effectively the above on steroids — in many cases, you’re writing about fear squared.

But today, it would be impossible to write just one story about activity in VIX options, because there’s just so much going on here. There are some wagers like the ones we saw last Thursday that call for volatility to reach historically rare extremes. There are also people betting on the opposite, either by selling out-of-the-money VIX calls or buying VIX puts, predicting that this market tumult will subside.

One thing’s for sure: volatility is expected to be volatile. There are so many bets in so many different directions that the VVIX Index (effectively VIX squared or VIX inception, a measure of how volatile the VIX is expected to be based on VIX options) has jumped to its highest levels of the year.