The CBOE Volatility Index is up 40 percent on the week, which indicates that investors are paying more to get protection against the market. And options traders appear to believe that the fear surge isn’t over yet.
As stocks slid on Monday,Tuesday and Wednesday, the volatility index (known as the VIX) has risen precipitously. And while the VIX and the S&P 500 do enjoy an inverse relationship, given that options prices rise when investors seek protection, traders say the VIX has risen far more than might be expected based on the market decline alone.
Investors have become “more skittish than they have been throughout most of 2014,” said Russell Rhoads, a VIX expert with the CBOE’s Options Institute. This can also be seen in options activity on the VIX.