VIX Jumps 21% to 19.99 and Traders Buy November Calls as AI Selloff Heads Into Earnings Week

The AI selloff has now moved into the options market. The Cboe Volatility Index closed Friday, Oct. 16, up 21.45% at 19.99, and traders are buying calls that pay off if volatility stays high into mid-November.

The VIX spent the morning near 16. It broke higher after midday, reaching an intraday high of 22.31 from a low of 15.73. That was its highest level in more than four months.

What the VIX did

The jump was large relative to the stock move behind it. The S&P 500 fell 1.1%, or 84.62 points. The VIX rose about 3.5 points on the day and spiked roughly 6 points inside the session, more than a near-1.5% S&P slide would normally produce.

The VVIX, the gauge of volatility in the VIX itself, had been near its weakest level in two years before it jumped.

The Nasdaq Composite dropped 572.99 points, or 2.1%, to 26,140.03. The Philadelphia Semiconductor Index fell nearly 4%. CoreWeave dropped more than 11%. The Dow slipped 0.3% to 52,002.41.

For the week, the Nasdaq lost 4.5% and the S&P 500 lost 1.9%, both their worst weekly results since June. The Dow gained 0.7%.

The calm that broke

Before Wednesday, Oct. 14, the S&P 500 had gone 53 sessions without a 1% daily drop. That was the longest such run since January 2020, according to Bloomberg data.

The trigger was a mix of accelerating U.S. inflation and doubts about AI spending. Fuel and food prices have kept climbing, tied to the wars in Iran and Ukraine, and the Federal Reserve faces growing pressure to raise rates. On Friday, WTI crude climbed back above $100 a barrel, up about 11% over five days.

Where the options money went

Nine of the ten most actively traded VIX contracts on Friday were calls. Six had strikes above the level where the VIX settled after its first spike. Those nine contracts traded nearly $27 million in premium, roughly 36% of the day's total VIX options premium.

One trader spent about $1.7 million on 9,200 VIX calls expiring Nov. 18 with a strike of 20. Another spent about $1.1 million on 12,500 calls expiring the same day with a strike of 23. The total was about $2.8 million.

Bank of America strategists say customer VIX call exposure has risen quickly and is now close to summer 2024 levels. That analysis uses signed Cboe trade data.

Brent Kochuba, founder of SpotGamma, said the speed of the VIX move and the heavy options volume suggest traders are locking in October VIX profits and rolling into hedges against a bigger market decline. He also saw multiple November VIX call trades above $1 million each.

Bet or insurance

The trades do not show intent. Calls like these can be a wager that volatility rises further, or portfolio insurance for investors who hold stocks and fear a drop. Kochuba's read leans toward hedging.

Jeremy Wien, managing partner at Moo Point Capital Management, said the market was underpricing risk. "The macro environment remains quite fragile," he said. "The VIX was not pricing in nearly as much risk as I believe it should be at the moment, mostly because the SPX hasn't until Friday moved in a manner that seems to warrant it."

The VIX still closed below 20, and the Dow held a weekly gain. The broad market has not yet shown the kind of damage the options positioning anticipates.

The hedge fund rumor

Part of Friday's afternoon spike came amid rumors that a major hedge fund was in trouble. CNBC options reporter Oliver Renick said conditions changed within a 30-minute window as talk spread that a market participant was "getting blown out." Jim Cramer cited pressure in energy markets and "a big hedge fund blowing up" as reasons Friday was one of the worst trading days of the year.

No fund has been named, and no firm has confirmed any losses or forced liquidation. The claim is market chatter, not a reported event.

What comes next

U.S. markets reopen Monday, Oct. 19. Meta, Tesla and SpaceX report earnings in the week ahead. Corporate guidance will help decide whether volatility cools or the AI selloff feeds the VIX positions traders built Friday.

Those November 18 calls expire a month out. By then, traders will know whether the earnings and the Fed's response to hotter inflation justified the premiums they paid.