Options traders are placing near-record bets on a potential stock market crash, driven by escalating concerns over a US recession and the threat of trade wars, according to Cboe, a leading US derivatives exchange.
On March 3, Cboe’s Head of Market Intelligence, Mandy Xu, highlighted a sharp uptick in trading activity, noting that the volume of options traders buying deep out-of-the-money VIX call options reached its second-highest level in history. These bets reflect growing fears that the VIX, a key measure of market volatility, may spike sharply if the market faces a major downturn.
Traders have been particularly active in betting on the VIX climbing above 50, signaling heightened concern over a potential crash. Last Thursday, traders placed near-record wagers on the VIX surging, as fears intensified following US President Donald Trump’s announcement of a 25% tariff on Mexico and Canada. The tariffs triggered a sharp sell-off, with the S&P 500 falling 1.8% and the Nasdaq slumping 2.6%, as concerns mounted that the global economy could be driven into recession by a trade war.
Meanwhile, the Australian market is also showing signs of strain, with S&P/ASX 200 futures pointing to a 0.86% drop on Tuesday, extending a downturn of about 4.7% since mid-February. The VIX, often seen as a barometer of market fear, surged 16% to 22.78 on Monday as investors flocked to volatility protection, marking a notable shift in sentiment.
Xu pointed out that one trader alone purchased over 260,000 strike options betting on the VIX soaring to between 55 and 75 by May, at a total cost of $10.7 million. This level of activity highlights the growing unease surrounding the market, as traders look to safeguard themselves against a sharp market downturn.
February also saw a significant portion of VIX bets—56%—focused on SPX options with zero days to expiry (ODTE), designed to offer protection against intraday market declines. The increased volume in these options is partly attributed to a partnership between Cboe and Robinhood, the discount brokerage popular with day traders.
The market’s pessimism was further underscored by a warning from the Atlanta Federal Reserve’s GDP tracker, which now predicts a 2.8% contraction in the US economy for the March quarter. This forecast highlights the mounting risks of a slowdown, which have been exacerbated by trade uncertainties.
As risk sentiment worsened, Bitcoin, a key risk asset, dropped 8.8% to $86,700, reflecting a broader shift toward safer investments like US government bonds. On Tuesday morning, the yield on the US 10-year government bond fell by seven basis points to 4.16%, signaling a flight to safety among investors.
With traders piling into crash protection options and economic data signaling a potential downturn, market anxiety is at heightened levels, suggesting that the risks of a significant market correction are top of mind for many investors.
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