Last Week in VIX – 12/21/2014

The first chart in this blog is a bit out of place. I normally discuss the VXST – VIX – VXV – VXMT term structure in the space where we review volatility index and ETP trading. However, after I completed that blog I considered taking a look at where we closed Friday versus the average for 2014. On the short end VXST is only 0.07 higher than the average for 2014, but this can still be considered relatively high since we are moving into a holiday shortened week. Volatility indexes are calculated based on calendar days and when there are market holidays it creates some downside pressure. This pressure shows up even more in VXST since it is measuring eight day implied volatility.   The rest of the curve is pretty elevated relative to this past year which, if correct in the extra concern, may not be a good sign for stocks in the first half of 2015.

VXST - VIX - VXV - VXMT 2014 Comparison

The VIX curve returned to normal for the holidays as the S&P 500 rallied 3.41% last week. January is almost at parity with VIX which indicates no risk premium was being paid to for VIX futures sellers or that there is little expectation of VIX moving up from current levels over the near term. I know that directly contradicts the first paragraph in this blog, but the markets probably don’t expect much over the next couple of (holiday impacted) weeks.

VIX Curve

Wednesday was December VIX expiration so the focus is all on 2015. One trader is looking to a VIX settlement in the teens or lower come January 21st.   Just a few minutes after the open on Thursday, with VIX at 17.15 and the January VIX future around 17.65 there was a broken wing butterfly that caught my eye. A trader sold the VIX Jan 15 Put at 0.89 and sold the VIX Jan 15 Call for 2.89. They completed this spread through purchasing a VIX Jan 14 Put at 0.48 and VIX Jan 23 Call at 1.05. The result is the payoff that shows up below –


Note that January VIX settlement anywhere below 17.25 results in a profit for this trade, the perfect storm is VIX settlement at 15.00 and a profit of 2.25.   Any settlement below 14.00 results in a payout 1.25. The risk to this trade is a similar situation to December with January VIX settlement at 23.00 or higher. In this case this broken wing butterfly would result in a loss of 5.75.

Last Week in Gold and Oil Volatility – 12/21/2014

Gold volatility represented by GVZ dropped 5% last week and the price of gold as represented by GLD was down 2.25%. Now on to what people care about these days – The week over week price change for the United States Oil ETF (USO – 21.96) comes nowhere near telling the story from last week. […]

Last Week in Volatility Indexes and ETPs – 12/21/2014

Santa Claus did not disappoint and his annual rally took the S&P 500 up 3.41% last week.   That move took the air out of the four S&P 500 related volatility indexes with VXST leading the way and losing over 40%.   The curve shift formed the week over week ‘horn’ which I guess is appropriate for the […]

Last Week in VIX – 12/14/2014

Nothing like a 3% drop to provide a year-end boost to VIX, especially when it appeared no one was expecting it. Last Friday we got through the employment report unscathed and the result was a VIX close under 12. The last potential big “known unknown” this year comes Wednesday afternoon with the FOMC announcement. As […]

Last Week in Oil and Gold Volatility – 12/14/2014

I recall when I totally ignored Oil in this space for gold, my how things have changed.   USO dropped over 12% last week which places the fund down about 38% in 2014. The result for OVX, as seen on the right side below, was a jump of 45% and a move near all-time highs. The […]

Last Week in Volatility Indexes and ETPs – 12/14/2014

The VXST – VIX – VXV – VXMT curve shift was the most dramatic change I have seen since writing these blogs. Of course VXST is just a little over a year old so there’s not too much history for comparison. I am more intrigued by the right side of the curve with VXV and […]

Last Week in VIX – 12/7/2014

VIX drifted to close under 12.00 for the first time since late August as the S&P 500 made more new highs. The leftover fear from the market’s dive in October seems to be gone just like all our Thanksgiving leftovers. At least one derivative strategist thinks lower VIX levels are on the near term horizon. Buzz Gregory […]

Last Week in Volatility Indexes and ETPs – 12/7/2014

With the S&P 500 racking up more record high closes last week volatility indexes dropped to levels expected when there is a strong bull market run combined with a lack of concern regarding a pull back for stock prices. We also got past the employment number, which did have a few traders on edge, without […]

Hedging With Volatility Is Not Just For Stocks

The CBOE Volatility Index, or what many investors have come to know as VIX, is the index many follow as a volatility indicator for the stock market. The benefit besides printing the “implied” or expected volatility for prices over the next 30 days, giving a range of expected prices 30 days from now, is that it […]

Big VIX Put Buyer from Yesterday

Yesterday I participated in a webcast with Mark Sebastian from Option Pit shortly after the market closed.   The first thing he said to me was, “did you see that big VIX put trade today?” Since then there has been more discussion of VIX put volume and the buyer of VIX Dec 12.50 Puts that came […]


  • Recent Comments

  • Tags