U.S. options volume at highest since 2011 as market volatility soars

NEW YORK (Reuters) - Growing concerns about the economy and markets sent volatility soaring on Wednesday and pushed trading volume in the U.S. options market to its highest level in more than three years, as traders moved to hedge their portfolios on fear of further market gyrations.

The CBOE VIX index - the stock market's "fear gauge,"- rose to touch 31.06, its highest level since December 2011, before pulling back to close at 26.25.

The surge in volatility drove up options volume to 33 million contracts traded, the busiest day since Aug. 8, 2011, according to data from options analytics firm Trade Alert.

There was heavy volume in out-of-the-money index puts, Tim Biggam, lead option strategist at online brokerage TradingBlock, said.

All but two of the top 10 most active options on Wednesday were puts on the SPDR S&P 500 ETF, which tracks the benchmark S&P 500 index. "Normally this sort of extreme volume and volatility signals short-term lows in stocks," Biggam said.

Options traded on the S&P 500 index totaled 2.6 million contracts, the busiest day ever for the product, according to Trade Alert.

Trading in puts conveying the option to sell stocks at a set price in the future exceeded calls, which provide a comparable right to buy them at a later date, by a 1.26-to-1 margin.

"Higher put option volumes are largely driven by portfolio managers and other institutions using options to hedge portfolios for fear of further market volatility,"WhatsTrading.com options strategist Fred Ruffy said.

This put-to-call ratio has climbed sharply since early October, and on Monday it hit a peak of 1.4, its heavies skew to puts since the early days of the financial crisis in March 2008.