VIX Options and Futures Review – 2/5/2016

Friday provided our first glimpse into how the economy was faring in January and the stock market apparently didn’t like what it saw.  VIX finished the day up 7% which was just under half the over 15% rise we got last week.  The February future managed an 11% gain to finish higher than spot VIX.  However, backwardation is still in place with the February contract higher than the March contract.  More on this after the chart and table below.

VIX Curve Table


I’ve been obsessively fixated on the current state of front month versus second month backwardation.  The front month VIX future has closed higher than the second month every day in 2016.  That’s a running streak of twenty four trading days.  This is the longest stretch since 2011 and the fifth longest on record.

What surprised me a bit was that the spread between February and March widened on Friday.  I conducted a twitter poll last Monday and the (very unscientific) result was about 2/3rds of voters thinking February would close at a discount to March regardless of how the market took the employment number.  Congrats to the 1/3rd that got it right and I’ll admit I was on the side of the majority who got it wrong.

The chart below shows the spread between the first month and second month each day this year.  The last time the spread was greater than or equal to 1.00 was the day after the 2016 closing low for the S&P 500.  To save you the trouble of looking it up, the closing low for this year (so far) was January 20th at 1859.



On Thursday most traders were looking only one day in to the future with Non-Farm Payrolls being reported the next day.  However, one of the larger VIX option trades targeted the VIX Weeklys expiration on March 9th just after the March employment number is reported.  A VIX Mar 9th Iron Broken Wing Butterfly was constructed with the VIX Mar 9th 23 Puts being sold for 2.84 and VIX Mar 9th 23 Calls sold at 2.52.  The trade was completed with the VIX Mar 9th 18 Puts being purchased at 0.42 and VIX Mar 9th25 Calls at 2.01 and net credit of 2.93.  The payout upon March 9th Weeklys VIX settlement appears below.



Note that a volatility event pushing VIX into the upper 20’s, or even low 30’s results in 0.93 profit.  The risk is on the downside with a maximum loss of 2.07 being taken if VIX is below 18.00 at expiration (as of Thursday the closing low for VIX in 2016 was 19.34).  I think the takeaway may be as long at VIX is still in the 20’s this trade will turn out OK.

Volatility Indexes and ETPs Review – 2/7/2016

VIX rose last week as did the rest of the volatility indexes that based their levels on S&P 500 Index (SPX) option pricing.  Usually in times of panic VXST (9-day volatility) rises above VIX (30-day volatility), but that was not the case this past week.  You can read this two ways – traders think stocks […]

VIX Options and Futures Review – 1/31/2016

The VIX term structure is approaching contango which many VIX watchers will consider a green light for the equity markets, but the February contract stubbornly remains elevated relative to the March contract.  Although on Friday this premium was down to 0.30.  My feeling is February may stay up a bit until we get the employment […]

Volatility Indexes and ETPs Review – 1/31/2016

The equity market came to life last week and avoided what could have been the worst January in most of our lifetimes for stocks.  In response the four volatility indexes that are based on SPX option pricing were lower, but all four are also well above where they were to end 2015.   I included […]

Block Trade Analysis – VIX Bull Call and Iron Condor Spreads

We had two big trades come through the VIX pit on Thursday and about the only thing they have in common is that they both used March VIX options. First, there was an out of the money bull call spread.  With spot VIX around 22.60 there was a buyer of 80,000 VIX Mar 27 Calls […]

Paper by Professor Bondarenko Has Intriguing New Analysis of PUT and WPUT Indexes

Jan. 27, 2016 – A new 10-page study examines both the CBOE S&P 500 PutWrite Index (PUT) and the CBOE S&P 500 One-Week PutWrite Index (WPUT), comparing their performances with that of traditional benchmark stock and bond indexes. This is the first comprehensive published study that examines the performance of a benchmark strategy index that […]

VIX Options and Futures Review – 1/24/2016

The stock market rally on Friday put pressure on VIX and pushed the spot index down enough that the front month February future closed at a slight premium.  This is the first premium for the front month VIX futures relative to spot since January 4th.  I’ll discuss this a bit more toward the end of […]

Volatility Indexes and ETPs Review – 1/24/2016

The S&P 500 rebounded by about 1.4% last week and SPX option volatility moved a bit lower.  The VXST – VIX – VXV – VXMT curve shifted lower and flattened.  However for a bit of perspective I show where we ended 2015.  I think the comparison is a good indication that we may not be […]

Be Cautious When Using VIX vs. Oil as a Market Indicator

I awoke this morning to an email from the matriarch of CBOE-TV Holly Goodhart.  She was preparing for her day with CNBC on in the background and something caught her eye.  The following comes directly from her email – I have CNBC on this morning, and they just spent a segment discussing this headline: “Markets […]

Current VIX Backwardation Streaks in Context

Spot FM SM

When VIX is relatively high the VIX term structure moves into what we commonly refer to as backwardation.  The way this may be defined varies among market participants, but most focus on the shorter end of the VIX curve.  That is what I’ve been doing lately as well.  It turns out, regardless of how you […]


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