A large slug of option contracts tied to the Cboe Volatility Index are set to expire on Wednesday, which could potentially amplify stock-market volatility after the Federal Reserve releases its latest decision on interest rates, several analysts said. Better known as “the Vix,” or Wall Street’s “fear gauge,” the Vix
attempts to reflect how volatile option traders expect the S&P 500 index to be over the coming month.
So-called “open interest” in option contracts tied to the Vix rose to 13.3 million as of Tuesday’s close, according to data published online by the Cboe, meaning more than 13 million contracts were circulating among traders, with buying heavily skewed toward calls — that is, bets that the Vix will rise. Brent Kochuba, founder of SpotGamma, said roughly 45% of outstanding VIX-linked options expired when the market opened on Wednesday. These options are cash-settled based on the opening value of the special opening quotation for the VIX. Settlement typically occurs the following day. A bullish bet on the Vix typically pays off when the S&P 500
falls. A rebound in U.S. stock prices over the past week drove the Vix back to 21.38 on Tuesday, its lowest end-of-day level sin …