Tuesday’s rally was so intense that it’s shaking up some of the usual assumptions around volatility pricing. The Cboe Volatility Index (VIX) – sometimes referred to as the stock market’s fear gauge – rose a full point in the midst of Tuesday’s breakout 1.8% rally in the S&P 500. More than 4 million S&P 500 index calls traded on Cboe Tuesday, a new all-time record volume, while the price for call options betting on a one-standard deviation move in the Nasdaq 100 surged 42% — the biggest single-day jump in five years. This extreme demand lifts options prices and implied volatility, keeping the VIX bid alongside stocks, which happens about 20% of the time. The put-to-call ratio fell to 0.83, the second lowest reading on record.
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