Traders see stock market volatility lingering as Wall Street fear gauge perks up By Reuters

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By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Traders in the U.S. equity options market appear to be betting that stocks, which turned volatile last week following the Federal Reserve's warning on continued policy tightening, will remain choppy over at least the next couple of months.

The volatility index, or VIX, was 0.33 points higher at 25.89, after rising to a more than 6-week high of 27.67, earlier in the session.

Fed Chair Jerome Powell warned on Friday that the U.S. central bank would raise rates as high as needed to restrict growth and keep them there "for some time" as it fights to control inflation.

The options-based gauge had dipped to a 4-month low earlier in August but rising worries about the stock market being vulnerable to the Fed's aggressive campaign of interest rate hikes has helped lift the index in recent sessions.

On Monday, VIX options volume stood at 478,000 contracts, or 1.3 times what is usual, according to options analytics firm Trade Alert data. One trade in particular stood out due to its large size. It appeared to involve the sale of 151,500 VIX October 19th puts at the 20 strike.

"This sale expects the VIX to remain over 20 through the October expiry," Joe Tigay, portfolio manager at Equity Armor Investments, said.

The VIX's long-term median stands at 17.7 and a VIX above 20 points to a slightly elevated expectation for market gyrations.

While the VIX has picked up from a week ago, the current level points more to an expectation for choppy markets than outright panic, Michael Purves, chief executive of Tallbacken Capital, said.

As we get into September, a seasonally weak time for U.S. stocks, investors looking to pick up more options protection could potentially drive the VIX higher, Purves said.

Meanwhile, the EURO STOXX 50 Volatility VSTOXX, the VIX's European equivalent, rose 1.8 points to finish at a near 6-week high of 28.46.

(This story refiles to remove extraneous coding)

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