$VIX call prices spike

Bullish bets on the CBOE Volatility Index have screamed higher since they were opened just eight sessions ago.

On Jul. 24, Investitute co-founder Jon Najarian noted that Investitute’s tracking systems cited the purchase of 261,000 21August 20 calls in a few prints for $0.33 to $0.35. Outstanding open interest in the contracts before the trade was 199,483, indicating that this was a new position.

Those calls have traded for as much as $1.85 today, more than 5 times their purchase prices. The underlying had risen 55.29% in the same time period, underscoring how options can far outperform their underlying asset.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

The VIX is currently higher by 6.77% to 19.08 today. The index, which does not have a dollar value and trades inversely to the S&P 500, has spiked on the back of a rate cut by the Federal Reserve, as well as trade headwinds for equities.