background

All-time High Closing Values Today for VPD, VPN, and 6 Other Indexes By Matt Moran

Matt Moran
Vice President
CBOE
March 29 - 12:44 am
Comments: 0

March 28, 2013 – Below are the closing values and CBOE microwebsite addresses for eight indexes that hit their all-time daily closing highs today (the last trading day of the quarter) –

  • 236.99                   VPD – CBOE VIX Premium Strategy Index            www.cboe.com/VPD
  • 234.23                   VPN – CBOE Capped VIX Premium Strategy Index             www.cboe.com/VPN
  • 158.11                   VXTH – CBOE VIX Tail Hedge Index                            www.cboe.com/VXTH
  • 148.11                   LOVOL- CBOE Low Volatility Index                            www.cboe.com/LOVOL
  • 945.6                     BXM – CBOE S&P 500 BuyWrite Index                      www.cboe.com/BXM
  • 1270.52                 PUT – CBOE S&P 500 PutWrite Index                        www.cboe.com/PUT
  • 1279.33                 BXY – CBOE S&P 500 2% OTM BuyWrite                  www.cboe.com/BXY
  • 1569.19                  SPX – S&P 500® Index                                www.cboe.com/SPX

 

VPD INDEX

The CBOE VIX Premium Strategy Index (VPD) had the highest 3-year gain of all the indexes listed in the section below.  The VPD Index tracks the performance of a strategy that systematically sells 1-month VIX futures.  The VPD Index tracks the value of a portfolio that overlays a sequence of short one-month VIX futures on a money market account. The VIX futures are held until expiration and new VIX futures are then sold. The money market account decreases leverage relative to a stand-alone short position in VIX futures. To further limit risk, the number of VIX futures sold at each roll is set to preserve 75% of the initial value of the portfolio in the event that VIX futures increase by 25 points.

 

THREE-YEAR % CHANGES FOR INDEXES

The % changes for various indexes for the 3-year period ending today are –

  • 61.2%                   VPD – CBOE VIX Premium Strategy Index
  • 48.7%                    VPN – CBOE Capped VIX Premium Strategy Index
  • 43.0%                    SPTR – S&P 500 Total Return
  • 40.0%                    VXTH – CBOE VIX Tail Hedge Index
  • 38.3%                    BXY – CBOE S&P 500 2% OTM BuyWrite
  • 34.2%                    SPX – S&P 500
  • 32.9%                    LOVOL- CBOE Low Volatility Index

Note that past performance is not a predictor of future returns. For more disclosures and information about benchmark index performance, please visit www.cboe.com/benchmarks.

Posted in Education, Performance, Research, VIX, Volatility | Tagged , , , , , | Leave a comment

European Vol Indexes (VSTOXX and VCAC) Up More Than 27% Since Mid-March By Matt Moran

Matt Moran
Vice President
CBOE
March 26 - 6:45 pm
Comments: 0

MARCH 26, 2013 –Since the banking crisis in Cyprus began in mid-March, investors have asked – How nervous are the markets in Europe and worldwide? and – How can I manage my worldwide portfolio exposure?

Investors now have more tools to track and manage worldwide volatility and portfolio exposure.  CBOE offers 20 indexes designed to provide real-time measures of implied volatility (see www.cboe.com/volatility), and a number of exchanges across the globe now are authorized offer licensed volatility indexes that utilize the popular VIX® methodology.

There is evidence to suggest that since mid-March implied volatility rose more in Europe than in other major financial markets. In the period from March 15 through today (March 26) the VSTOXX – EuroSTOXX 50 Volatility Index (VSTOXX) rose 32.7%, the CAC-40 Volatility Index (VCAC) rose 27.8%, the CBOE EuroCurrency Volatility Index (EVZ) rose 17.0%, while the CBOE Volatility Index® (VIX®) rose only 13.0%.  See the chart and table below for more related info.

Four Vol Ind

Eight Vol Ind

MANAGING GLOBAL EXPOSURE WITH CBOE OPTIONS

CBOE now offers dozens of options for investors who wish to manage their global equity exposure.

Below is a list of the CBOE options volume in February for select CBOE options.

Select CBOE options

A microwebsite with more information and more options is at www.cboe.com/global.

STRATEGIES

Strategies that could be considered to manage worldwide portfolios include –

Posted in Education, Performance, Research, VIX, Volatility | Tagged , , , | Leave a comment

A study considering the advantages of tying a Variable Annuity fee to VIX

Alan Grissom
Vice President, Insurance
S&P Dow Jones Indices
March 26 - 4:54 pm
Comments: 0

This paper explores the use of the CBOE Volatility Index® (VIX)® in setting the risk charge (“fee”) for a variable annuity (VA)
product guarantee, and will demonstrate the potential advantages – both to variable annuity carriers and to policy holders – of
calculating the fee as a function of VIX.

This paper will analyze the use of a dynamic fee that more closely matches the guarantee and hedging costs in different
market environments, to address some of the difficulties faced by variable annuity carriers.

We first discuss the problems typically faced by carriers in matching fees and costs on typical VA products, even with a
hedging program in place.

We then explain how using a fee linked to VIX can help resolve these problems. Finally, we provide an illustrative example
where we apply this approach to a simple guaranteed minimum withdrawal benefit (“GMWB”) product.

We demonstrate how carriers may have improved ability to manage cash flow for hedging purposes, and more stable reserve
and capital outcomes under certain regulatory regimes. We also show that this may allow policyholders to benefit by having
more money exposed to equities in low volatility, rising markets.

Posted in VIX | Tagged , , , | Leave a comment

Last Week’s VIX Action by Russell Rhoads, CFA

Russell Rhoads
Instructor
CBOE
February 12 - 11:36 am
Comments: 0

Both the S&P 500 and NASDAQ-100 were up slightly last week and both VIX and VXN were up as well.  That is where the similarity between VIX and VXN action ends.  Despite a higher VIX, all VIX futures contracts were lower on the week.  It appears that risk farther out on the curve is finally coming in.  Every single VIX futures contract settled Friday under 20.00.  If I had an intern I would have him digging through data to figure out when that last happened.

VXN was the strongest of the equity market related volatility indexes rising 1.80% on the week.  The curve action left me scratching my head with February much weaker, March and April trading higher, and May trading down.

VIX was higher by a whopping 0.12 last week, but the two front month futures lost value.  Since the long ETNs are focused on the futures they were down across the board despite VIX ticking up.  It was noted that there was some heavy long dated VXX put buying going on this past week.  One trade saw a big buyer of the VXX Sep 15 Puts for 1.12 that sold VXX Sep 12 Puts for 0.38 for a net cost of 0.74.  VXX is currently at 22.99, so this is a prediction of a much lower VXX by the Fall.

In the VIX Options arena trading continues to focus on farther out months than is the norm.  For instance in a single trade there was a buyer of 10,000 VIX Jun 30 Calls at 0.675 and 20,000 May 30 Calls for 0.55.  Can you say someone doesn’t expect a calm summer?  VVIX was in the mid 70’s for a good part of the week which is below a historical range.  Do keep in mind near dated options feed the VVIX calculation so demand father out does not have a positive impact on the level of VVIX.

There were also some bearish or neutral option trades, but those were focused on the near dated options.  An interesting trade hit the market Thursday morning where there was a seller of the VIX Feb 14 Straddle for 0.95.  If this trade is held to settlement this trade pays off with February VIX settlement between 13.05 and 14.95.  In the more bearish camp was a pretty exotic trade.  A trader bought the VIX Feb 14 Put, Sold a Feb 17 Call, and finally bought a Feb 20 Call for a net cost of 0.10.  The best case is for a low VIX settlement and a profit will be made below 13.90.  The downside is the upside here, if VIX rallies and settles over 20.00 the maximum loss could be 3.10.

Remember tomorrow is February VIX expiration so there are only a few more hours to participate in Feb VIX and VXN trading.  Then it is on to March.

Posted in Education, Futures and Options, Performance, VIX, Volatility | Leave a comment

VIX Recently Has Been “High” (vs. SPX Historic Volatility) By Matt Moran

Matt Moran
Vice President
CBOE
February 11 - 8:24 pm
Comments: 0

Over the past year, and particularly at times when the CBOE Volatility Index® (VIX®) was below 15, several people have asked me questions such as –

  • Why is the VIX so low?
  • Shouldn’t the VIX be at higher levels, particularly in light of worldwide uncertainties and volatility?

An argument could be made that VIX recently has been at relatively low levels when compared to its long-term averages; the average daily closing levels for the VIX were (a) 13.05 so far in 2013; and (b) 20.4 for VIX since the inception of VIX data in January 1990.  The fact that the VIX has been about 7 points below its long-term average has been a key factor in facilitating the record volume in both VIX futures and VIX options in January 2013; some investors like to buy VIX call options and VIX futures for diversification and catastrophe-protection purposes when the VIX is below 15.

On the other hand, one could make the argument that VIX recently has been somewhat high when compared to the concurrent 30-day historic volatility of the S&P 500® (SPXTM) Index. Over the past year the average daily closing values were 17.1 for the VIX Index, and 12.8 for the 30-day historic volatility of the SPX Index.

This first chart has a comparison of the two values since January 2008 –

VIX & Hist Vola

The second chart is from Exhibit 12 of a paper by Hewitt EnnisKnupp –

The CBOE S&P 500 BuyWrite Index (BXM) – A Review of Performance
(2012).  The paper states that the difference between implied volatility and realized volatility is a risk premium earned by the investor.

VIX and Realized Vol

INDEX OPTIONS STRATEGIES

A number of papers available at www.cboe.com/benchmarks (including the paper by Hewitt EnnisKnupp) make the point that option-writing benchmark indexes have had relatively strong risk-adjusted performance, in part because implied volatility for SPX options usually has been higher than realized volatility.

You could try exploring the Benchmark Indexes and Education sections of the CBOE website to learn more about the writing of index options and the potential for higher yields and lower volatility in your portfolio.

Posted in Education, Performance, Research, VIX | Tagged , , , | Leave a comment

Portfolio Protection Tools, As SPX Tops 1515 – By Matt Moran

Matt Moran
Vice President
CBOE
February 9 - 5:16 pm
Comments: 0

This past Friday the S&P 500® Index (SPX) closed at 1517.93, and some investors are asking if now is the time to implement portfolio protection strategies.  Over the past decade the SPX Index had its highest daily close of 1565.15 on Oct. 9, 2007, and its lowest daily close of 676.53 on March 9, 2009.

RECENT NEWS STORIES

Below are excerpts from recent news stories –

(1)  At wsj.com –

“As Stocks Surge, Is It Time for Some Protection?  By Brett Arends (February 8, 2013) …Many investors, as they watch stock prices rebound to levels last seen in 2007, might be wondering if it is time to cash in some of their gains. The downside to selling, of course, is that you risk missing out if the market keeps going up—and face a potential tax hit on capital gains. Another strategy is to buy insurance against a market downturn via options on individual stocks or a broad market index, such as the Standard & Poor’s 500-stock index. … Prices are now back to levels last seen in 2007, just before the crash, adds Sean Heron, who manages options-based portfolios at Philadelphia-based investment company Glenmede, which has $22 billion under management and buys and sells options. …”

(2)  At www.barrons.com –

“Traders Start Playing Defense. By Steven M. Sears (February 9, 2013) Investors are quietly building defensive options positions as the stock market hovers around all-time highs. The “greed-in” and “risk-on” trade still dominates, but a nascent change is occurring as key market risks, particularly the threat of sequestration, loom menacingly ahead.  With the Standard & Poor’s 500 inhaling thin oxygen around 1500, investors are bearishly positioning in financial and small-company stocks that have reacted poorly to Europe’s economic and political unrest and the U.S. economy’s malaise. Investors are buying puts,…”

After reading those news clips, you might ask – what about the past performance of protective strategies?.  Below are excerpts from some index analyses and studies.

COMPARING BENCHMARK INDEXES DURING THE FINANCIAL CRISIS

CBOE now has 10 benchmark indexes designed to show the hypothetical performance of various options-related strategies. www.cboe.com/benchmarks

Two of the CBOE Indexes that are designed to provide some downside protection are –

  • CLL – CBOE S&P 500 95-110 Collar Index (holds S&P 500 stocks, buys SPX put options for downside protection, and writes SPX call options for income)  www.cboe.com/CLL
  • VXTH – CBOE VIX Tail Hedge Index (holds S&P 500 stocks, and buys VIX® call options) www.cboe.com/VXTH

This chart compares the performance of VXTH, CLL, S&P 500, and the S&P GSCI commodity indexes around the time of the 2008 financial crisis.  During the 11-month period shown, the VXTH Index was down 25% and the S&P GSCI Index declined 58%.

Indexes 11 monthsHISTOGRAM SHOWING HISTORICAL LEFT TAIL RISK

Exhibit B of the paper by Asset Consulting Group,

Key Tools for Hedging and Tail Risk Management
(February 2012) (available at www.cboe.com/benchmarks) studied a time period of more than 25 years, and showed that the CLL Index had much left tail risk than the S&P 500 and S&P GSCI indexes.  During the time period studied, the S&P 500 experienced 13 months with losses of worse than 8%, while the CLL Index had only one such month.

Histogram CLL

UMASS PAPER ON VIX FUTURES AND OPTIONS

In 2009 UMass published a paper –“VIX Futures and Options – A Case Study of Portfolio Diversification During the 2008 Financial Crisis.”

http://www.cboe.com/micro/vix/VIXFuturesOptionsUMassSummary.pdf     
The paper found that, with a 10% allocation of VIX futures to the Equity/Bond/Alternative portfolio over the 34-month time period ending in December 2008 –  The portfolio’s annualized return was improved by 3.5 percentage points (increased from -5.6% to -2.1%), and The standard deviation was cut by one-third (drops from 17.9% to 11.3%).

VIX Szado Fig 2

CONCLUSION

To learn more about protective strategies, please visit the Strategies and Education sections at www.cboe.com.

Before investing, please be mindful of taxes and transaction costs, and please read closely risk disclaimers at the web pages above, and in the Options Disclosure Document.

 

Posted in Futures and Options, Performance, Research, VIX, Volatility | Tagged , | Leave a comment

Record Monthly Volume for VIX Futures and Options by Matt Moran

Matt Moran
Vice President
CBOE
February 4 - 12:07 am
Comments: 0

In January 2013 both options and futures on the CBOE Volatility Index® (VIX®) established new all-time monthly volume records.

VIX Index options recorded their best month ever with an average daily volume (ADV) of 680,822 contracts, exceeding the previous record ADV of 582,022 contracts in August 2011.  Total volume for the month was 14.3 million contracts, also a new record.

VIX options Jan 2012

VIX futures monthly trading volume and ADV established all-time highs in January 2013.  Nearly 2.9 million VIX futures contracts changed hands, beating the previous record of over 2.7 million contracts traded in November 2012.  The record VIX futures ADV in January was 137,988 contracts, up 241 percent and 13 percent, respectively, from 40,439 contracts in January 2012 and 121,782 contracts in December 2012.  VIX futures also set new open interest records on four consecutive days in January, culminating on January 16 with record open interest of 472,403 contracts.  To learn more about VIX futures and options and how these tools can be used in your portfolio, please visit www.cboew.com/VIX.

VIX futures daily

Posted in Futures and Options, VIX | Tagged , , , | Leave a comment

VXAZN Index Fell a Record 37.5% Today

Matt Moran
Vice President
CBOE
January 30 - 5:53 pm
Comments: 0

Jan. 30, 2013 – Today the CBOE Equity VIX® on Amazon (VXAZN) fell 37.5% – a record one-day fall in percentage terms for the index.  VXAZN is designed to measure the expected volatility of Amazon.com (AMZN) stock.   The data history for the VXAZN Index goes back to June 2010. A link to spreadsheets is at www.cboe.com/VXAZN

DAYS WITH BIGGEST % CHANGES

Below are the six days in which the VXAZN Index had changes (up or down) of more than 27%; it is interesting to note that all five of the down days were the day after AMZN earnings announcements.

  • 30-Jan-2013                      -37.5%
  • 26-Oct-2012                      -36.1%
  • 1-Feb-2012                       -36.0%
  • 27-Jul-2012                       -31.3%
  • 27-Apr-2012                      -27.0%
  • 26-Dec-2012                     32.0%

HISTORICAL PRICE CHARTS FOR VXAZN INDEX

+++++++

IMPLIED VOLATILITY AND NEWS ANNOUNCEMENTS

The abstract for a 1996 academic article noted that –

“We study the implied volatility behavior of call options around scheduled news announcement days. Implied volatilities increase significantly during the pre-event period and reach a maximum on the eve of the news announcement. After the news release, implied volatility drops sharply and gradually moves back to its long-run level. Only on the event date are movements in the price of the underlying significantly larger than expected. These results confirm the theoretical results of Merton (1973).”

The Impact of Firm Specific News on Implied Volatilities, by Monique W.M. Dondersa and Ton C.F. Vorst.  Journal of Banking & Finance, (November 1996), Pages 1447–1461.

******

OPTIONS STRATEGIES

For more information on options strategies that could be considered as implied volatility is changing, please visit http://www.cboe.com/Strategies

Posted in Education, Performance, Research, VIX, Volatility | Tagged , , , | Leave a comment

Last Week’s VIX Action by Russell Rhoads, CFA

Russell Rhoads
Instructor
CBOE
January 28 - 12:26 pm
Comments: 0

The S&P reached the 1500 level and then some this week.  The interesting action is that VIX and VVIX were higher as well.  It’s odd to have the weekly change for all the same color (red or green), but SPX, VIX, and VVIX were all green.   VIX held up in a higher S&P 500 market Friday which was attributed to a next week being a big news week.  Next week consumer confidence, GDP, and employment numbers come along with their being an FOMC meeting.

One of the more interesting trades this week involved a pretty complex spread.  There was a big buyer of VIX Apr 17 Puts and VIX May 22 Calls that was selling VIX Feb 19 Put and VIX Mar 24 Calls to help offset some of the premium.  Also on Thursday there was a buyer of 100,000 VIX Feb 16 Calls which came in as VVIX was around 71.  This buying pressure help push VVIX up to 80 from 71.  VVIX settled Thursday at 76 after a wide range based on VIX option buying.   Usually the front two month options have the most trading interest, however, due to the debt ceiling timing being pushed out to May, May options are seeing more activity than one would expect in late January.   The VIX May 20 and May 22 Calls are already trading heavily.

Upon first glance there was some divergence in the US equity markets this past week as the S&P 500 was up over 1% and the NASDAQ-100 was down about a quarter a percent.  Of course knowing that Apple (AAPL – 439.88) lost 12% on the week and as AAPL is the biggest component in the NASDAQ0100 this weighed a bit on performance.

More divergence occurred between the S&P 500 and VIX along with NASDAQ-100 and VXN.  The S&P 500 finished the week higher as did VIX and the NASDAQ-100 was lower as was VXN.  One possible explanation for VIX is that there is a slew of economic data along with an FOMC meeting next week.  With VXN the explanation of performance may go back to AAPL.  The implied volatility of AAPL was elevated going into AAPL’s earnings this past week and this bled over into the implied volatility of NDX options.  Post AAPL earnings there was a volatility crush in AAPL options and some pressure on VXN.

Finally, the curves both flattened as all VIX and VXN futures finished down on the week.  Although under pressure, VIX futures posted the fourth busiest day ever on Thursday this past week with 184,273 contracts changing hands.

Posted in Education, Futures and Options, Performance, VIX | Leave a comment

VXAPL, VXIBM, VXGOG: 1-Day Falls of More Than 33%

Matt Moran
Vice President
CBOE
January 25 - 12:28 am
Comments: 0

This week earnings announcements were made after the close of regular stock trading by some key tech companies — IBM and Google on Jan. 22nd, and Apple on Jan. 23rd.

Implied volatility indexes related to these stocks experienced big one-day drops the following days -

  • CBOE Equity VIX® on IBM (VXIBM) had a record one-day drop of 40.9% on Jan. 23rd     www.cboe.com/VXIBM;
  • CBOE Equity VIX® on Google (VXGOG) had a record one-day fall of 36.7% on Jan. 23rd   www.cboe.com/VXGOG
  • CBOE Equity VIX® on Apple (VXAPL) fell 25.4% on Thursday, Jan. 24th  www.cboe.com/VXAPL

ONE-WEEK CHARTS

Here are one-week charts related to the 3 volatility indexes:

BIGGEST ONE-DAY MOVES

The historical data for the VXAPL, VXIBM, and VXGOG indexes goes back to June 2010.  Here are the biggest one-day moves (up or down) for these three indexes –

VXAPL Index  www.cboe.com/VXAPL

  • 25-Jan-2012                        -33.1%
  • 25-Jul-2012                         -26.2%
  • 19-Oct-2010                        -25.7%
  • 24-Jan-2013                        -25.4%
  • 8-Aug-2011                         25.7%
  • 4-Aug-2011                         29.6%
  • 16-Mar-2011                      30.0%
  • 14-Mar-2012                      31.5%
  • 18-Aug-2011                       39.7%

VXIBM Index  www.cboe.com/VXIBM

  • 23-Jan-2013                        -40.9%
  • 4-Aug-2011                         33.0%
  • 18-Aug-2011                       41.6%

VXGOG Index   www.cboe.com/VXGOG

  • 23-Jan-2013                        -36.7%
  • 14-Oct-2011                        -31.1%
  • 18-Aug-2011                       30.1%

CONCLUSION

One could ask – as a general principle, is there more uncertainty, higher implied volatility and higher prices for options in the period just prior to an earnings announcement (vs. the period just after an earnings announcement)?  Big changes in implied volatility can have a big impact on various options strategies and the amount of options premium paid or received.  For more information about options strategies and more than 20 volatility indexes, please visit www.cboe.com/volatility

Posted in Education, Performance, Research, VIX, Volatility | Tagged , | Leave a comment

  • categories

  • Recent Comments

  • tags