VIX volatility index rises above 22 amid AI sector sell-off

The CBOE Volatility Index (VIX) rose above 22 on the 16th, marking its highest level in four months. This surge follows a significant sell-off in artificial intelligence-related stocks, which contributed to the Nasdaq Composite falling approximately 2% to 2.5%, its largest single-day drop since early June.

Market anxiety is being driven by concerns regarding excessive debt levels taken on by technology companies to build AI infrastructure. Specifically, CoreWeave, which carries over $51 billion in total debt, saw its stock price drop by approximately 12% to 13% on the day, with a cumulative weekly decline of roughly 25%.

In response to the rising volatility, traders have engaged in heavy call option activity for November maturities. Nine of the top ten most purchased VIX option contracts were call options, with premiums totaling approximately $27 million. Analysts suggest traders are shifting positions from October to November to hedge against potential further market declines.

Other market pressures include rising oil prices, with WTI and Brent crude seeing significant increases, and anticipation surrounding the upcoming Federal Open Market Committee (FOMC) meeting.