VXST Options – Day 1 Est. Volume of 3,134, as Index Jumps 30% – By Matt Moran

APRIL 10, 2014 –  Today CBOE launched options on the CBOE Short-Term Volatility Index (VXST), and the VXST Index rose 30% to close at 16.50.

VXST options trading volume was an estimated 3,134 contracts, with much of the volume focused on near-term VXST call options (with an April 16 expiration and a 16 strike price) this morning; according to Bloomberg, the price of these options rose from a low of 0.30 this morning to a high of 1.20 this afternoon.   

A CBOE press release noted that — “We were pleased to see a very active opening day of trading in Short-Term VIX options, with strong volume and broad market participation,” CBOE Holdings CEO Edward T. Tilly said.  “Short-Term VIX options bring a new dimension for volatility trading to the market, and it is clear from today’s activity that market participants see tremendous utility for the contract.”

While the VIX measures expectations of 30-day future volatility, the VXST provides a market-based gauge of expectations of 9-day volatility, making it particularly responsive to changes in the S&P 500® Index.

Here are some features of the cash-settled VXST options (see my April 8 Blog for more features) –

1.    FOUR AVAILABLE EXPIRATION DATES. For the next couple of trading days, there will be four available Wednesday expirations available for VXST options – April 16, April 23, April 30, and May 7.

2.    TICKER SYMBOLS  For CBOE’s index options, simply type in the index ticker symbol (e.g., VIX and VXST at CBOE’s Options Quote Page to see delayed quote prices for index options.  CBOE set the VXST futures ticker symbols at VSW1, VSW2, VSW3, VSW4 and VSW5 (where W1 refers to the first week of the month, etc.).  Click here for more details on Quote Vendor Symbols for VXST Futures.  

3.    HIGHER VOLATILITY OF VOLATILITY.  At today’s close the 30-day historic volatilities were 205 for VXST and 114 for the VIX Index®, according to Bloomberg.  At 2:30 pm CT today, the estimated implied volatilities for the near-term options with a 16 strike price and April 16 expiration date were 152 for the VXST Index and 102 for the VIX Index.

4.    BIG MOVES FOR VXST INDEX AND VXST FUTURES TODAY.  Today the VXST Index rose 30%, the VXST near-term futures rose from 13 to 15.6 (a 20% gain), and the VIX Index rose 15%.  The table below provides a list of today’s price changes for 23 volatility indexes; visit www.cboe.com/volatility for more details.

Before investing in the potentially powerful VXST options and futures, investors are encouraged to do research about unique pricing and cost features.   Please visit www.cboe.com/VXST to learn more about options strategies, important risk disclosures, charts and data.

VXST chart April 10VXST impl vola day 1 ATMVolatility Indexes on April 10

VXST Options to Launch April 10 – By Matt Moran

April 8, 2014 – CBOE plans to launch options on the CBOE Short-Term Volatility Index (VXST) on Thursday, April 10.  Below are points that can help in your analysis.  Much more information is available at www.cboe.com/VXST.

1.    VXST INDEX – The VXST Index is based on real-time prices of options on the S&P 500 Index that expire every week, and is designed to reflect investors’ consensus of future (nine-day) expected stock market volatility. The time series data history for the index begins in January 2011, and the VXST experienced sharp rises of more than 40% on nine different trading days since January 2011.

2.    LAUNCH DATES AND SETTLEMENT.  VXST futures (with a $1,000 multiplier) launched on Feb. 13, 2014. VXST options (with a $100 multiplier) are scheduled to launch on April 10. Both products have cash settlement, generally on every Wednesday morning throughout the year (if there is a conflicting holiday then the expiration date will be moved to the preceding business day).

3.    TICKER SYMBOLS

VXST FUTURES TICKERS.   CBOE set the VXST futures ticker symbols at VSW1, VSW2, VSW3, VSW4 and VSW5 (where W1 refers to the first week of the month, etc.).  Click here for a more details on Quote Vendor Symbols for VXST Futures.

This table below provides examples for ticker symbols for prices on the “Week 3” VXST futures that expire on Wednesday, April 16, 2014 (with “3” being the week code, “J” being the month code and “4” the year code).

Symbol for VXST futures expiring on April 16, 2014 (week 3)

    Available at –

3VSW/J4

 CFE Futures Delayed Quotes

VSW3 J (Apr 14)

 CFE Historical Market Data

Z3J4 <Index>

 Bloomberg terminal

List of VXST Futures Ticker Symbols for Other Quote Vendors

 

VXST OPTIONS TICKERS.  For CBOE’s index options, you can simply type in the index ticker symbol (e.g., VIX (and VXST after April 10)) at CBOE’s Delayed Options Quote Page to see delayed quote prices for index options.

4. VXST VALUES HAVE RANGED FROM 10.20 TO 68

Since January 2011, the VXST daily closing values have ranged from a high of 68 on August 8, 2011 to a low of 10.20 on Aug. 2, 2013.

VXST price chart thru April 8

5. NEGATIVE CORRELATIONS AND DIVERSIFCATION. Many of investors who explore the VXST note the fact that the VXST often moves in the opposite direction of many “traditional” indexes. Instruments with low or negative correlations might have potential to be used for diversification purposes.  In the time period from Jan. 2011 through  April 4, 2014, here are the negative correlations for the weekly returns of the VXST index versus other key indexes –

  • S&P 500 (SPX)   -0.69;
  • Russell 2000 (RUT)  -0.63;
  • MSCI EAFE Index (in US$)   -0.53;
  • MSCI Emerging Markets Index (US$)  -0.45, and
  • S&P GSCI Index (commodities) -0.36.

During the same time period, the VXST Index had a positive correlation of 0.44 versus the Citigroup 30-year Treasury Index.

6. HIGH VOLATILITY OF VOLATILITY

Here is a list of the 360-day historic volatility for securities and futures as calculated by Bloomberg on April 8.  High “vol of vol” plus negative correlation can make for a very intriguing investment instrument. The historic volatility of the VXST (and of short-term expected volatility) was much higher than that of the VIX, VXV, VXMT, and other volatility indexes.

  • 180.6               VXST – CBOE Short-Term Volatility Index
  • 110.4               VIX® – CBOE Volatility Index®
  • 99.5                 GVZ – CBOE Gold Volatility Index
  • 91.4                 VXEEM – CBOE Emerging Markets ETF Volatility Index
  • 90.0                 VVIX – CBOE VIX of VIX Index
  • 87.6                 VXAPL – CBOE Equity VIX® on Apple
  • 79.9                 Front-month VIX Futures (UX1 on Bloomberg)
  • 72.6                 OVX – CBOE Crude Oil Volatility Index
  • 65.6                 VXV – CBOE S&P 500 3-Month Volatility Index
  • 45.9                 VXMT – CBOE Mid-term Volatility Index
  • 29.6                 Apple (AAPL)
  • 11.7                 S&P 500® (SPX)

7. BIG DAILY MOVES FOR VXST SPOT INDEX

As shown in the table below, the VXST spot index has had big daily moves of more than 60% on three different days since January 2011, all of which occurred on days in which the S&P 500 Index declined by more than 2%.  The moves for the VXST all were bigger than the daily moves for the other three volatility indexes in the table.

Big Moves VXST spot8. BIG DAILY MOVES FOR VXST FUTURES

As shown in the line chart and table below, both the VXST spot index and the near-term VXST futures had bigger daily moves (both up and down) than the VIX spot index and VIX near-term futures on some days in mid-March 2014. Investors who trade VXST options are encouraged to monitor the VXST futures price movements.

Mid-March 2014 daiy changes

 

9. OPTIONS STRATEGIES. In light of the fact that the VXST index and futures have had some big moves, some of the VXST options strategies that investors could explore include long VXST call options for quick upside potential. You can visit the VIX options strategy page to learn more about these options strategies –


10. MORE INFORMATION. Please visit www.cboe.com/VXST for VXST options and futures contract specifications, downloadable price history, updated price charts, and much more information on the VXST Index.

Bracketology – Biggest One-day Moves for VXST (up 81.7%) and GVZ (up 61.7%) – By Matt Moran

While many U.S. sports fans are bemoaning the fact that their NCAA basketball brackets have been demolished, options fans can always look to volatility indexes for intriguing comparisons that can help hone their trading and investment strategies. Below are two newly constructed brackets that use CBOE data.

BIGGEST ONE-DAY MOVES

One of the top reasons that investors follow the volatility indexes and invest in volatility-related products is that the volatility indexes often have made very explosive short-term upside moves, particularly in times when stocks and other “traditional” assets are falling in value.  

Brackets-Volatility Big 1 day MovesThe bracket above shows the biggest one-day % moves for eight volatility indexes; there now are CFE futures for all eight of these indexes, and CBOE now offers options on most of these indexes.   The CBOE Short-Term Volatility Index (VXST) had the biggest one-day move of any of the indexes, and options on the VXST are scheduled to be launched this week on April 10th.  www.cboe.com/VXST.

During the past three years, the biggest one-day moves (in % terms) for some of CBOE’s volatility indexes (that have available futures) were –

  • 81.7%                    VXST – CBOE Short-Term Volatility Index
  • 61.7%                    GVZ – CBOE Gold Volatility Index
  • 50.0%                    VIX – CBOE Volatility Index
  • 36.6%                    VXEWZ – CBOE Brazil ETF Volatility Index -
  • 35.5%                    VXEEM – CBOE Emerging Markets ETF Volatility Index
  • 34.6%                    OVX – CBOE Crude Oil Volatility Index

 During the past three years, the biggest one-day moves (in % terms) for other volatility indexes (that do not have available futures) were –

  • 76.1%                    VXSLV – CBOE Silver ETF Volatility Index
  • 41.6%                    VXIBM -CBOE Equity VIX® on IBM
  • 39.7%                    VXAPL – CBOE Equity VIX® on Apple
  • 28.8%                    VXV – CBOE S&P 500 3-Month Volatility Index
  • 28.3%                    VXTYN – CBOE/CBOT 10-year U.S. Treasury Note Volatility Index
  • 22.4%                    EVZ – CBOE EuroCurrency Volatility Index

To learn more about 26 volatility indexes, and futures and options on select volatility indexes, please visit www.cboe.com/volatility.

++++++++

MORE DIVERSIFIED PRODUCT LINE AT CBOE

In the late 1980s the vast majority of CBOE’s most liquid products were options on stocks and options on stock indexes.  As shown in the chart below, CBOE now offers a much more diversified product line, with the addition of options on commodity-based ETFs, options on global ETFs, options on volatility indexes, and options on interest-rate-based ETFs.    In the first quarter of 2014, the CBOE products with the highest average daily volume were S&P 500® (SPX) options (877,560) and options on the CBOE Volatility Index® (VIX®) (773,771).  Visit www.cboe.com/index to learn more about the options on hundreds of securities offered by CBOE. 

Brackets-Top volume in Q1 

Last Week in VIX – 4/6/2014

VIX under 14.00 signals that the market is not too concerned about a volatility event over the next few weeks.  I noticed on Friday that there seemed to be several block trades in the VIX options that seem to be looking past April expiration to May.  A particular one that caught my eye was a buyer of over 40,000 VIX May 18 Calls at 0.89 that also sold the same number of VIX May 25 Calls at 0.28 for a net cost of 0.61.   The payout for this trade, if held through May expiration, appears on the payout diagram below.

VIX May 18 - 25 CS Payoff

 

Monday morning quarterbacking is very easy as is second guessing trades – both of which I try to avoid.  However, I saw this trade and it occurred to me to check when VIX had last topped 25.00 – we need to go back to June 2012 or almost two years since VIX last closed over that level.  If this trader is targeting 25.00 for VIX they are expecting something dramatic on the downside in the S&P 500 over the next few weeks.

The futures curve shifted down in a pretty orderly fashion across the spectrum of available VIX futures.  This was despite the bearish activity that popped up on Friday which was mostly focused on the tech heavy Nasdaq-100.

VIX

Last Week in Short Term Volatility – 4/6/2014

Despite the market nervousness on Friday, VXST was down just over 8.5% last week and the front two weekly futures contracts were down as well.  Things get a bit interesting when looking to the far right side of the chart where the contracts that expire toward the end of April show up.  Both are at a pretty significant premium to the spot index so market participants may want to brace for a late April swoon if they believe the volatility guys are properly anticipating a rise in volatility (and subsequently a drop in the S&P 500).

This blog is supposed to be about what happened last week in short term volatility, but the big news is coming next week with the launch of options on VXST scheduled for Thursday April 10th.  I’ll definitely be providing a preview before the launch this week.

To get a jump on VXST options make sure to check out – www.cboe.com/vxst

VXST

Last Week in Gold and Oil Volatility – 4/6/2014

Both Gold and Oil had pretty dull weeks compared to what was going on in emerging markets and domestic stock indexes last week.  The price action in gold calmed down after breaking 2014’s up-trend last week and the result was a much lower CBOE Gold ETF Volatility Index (GVZ – 15.81).  GVZ dropped about 9.5% last week and there was a fairly orderly drop in the futures curve.

There was a slight drop in the United States Oil ETF (USO – 36.43) last week and OVX was lower as well.  The shift in the curve was less than orderly though – note that on the far end of the curve the futures are pretty elevated.  This may be either expectations of a spike around driving season or maybe some geopolitical worries may be priced in for June or July right now.

GVZ OVX

Last Week in Emerging Market Volatility – 4/6/2014

Despite the market nervousness on Friday, VXST was down just over 8.5% last week and the front two weekly futures contracts were down as well.  Things get a bit interesting when looking to the far right side of the chart where the contracts that expire toward the end of April show up.  Both are at a pretty significant premium to the spot index so market participants may want to brace for a late April swoon if they believe the volatility guys are properly anticipating a rise in volatility (and subsequently a drop in the S&P 500).

This blog is supposed to be about what happened last week in short term volatility, but the big news is coming next week with the launch of options on VXST scheduled for Thursday April 10th.  I’ll definitely be providing a preview before the launch this week. VXEEM VXEWZ

Last Week in Nasdaq-100 and Russell 2000 Volatility – 4/6/2014

Two of my areas of interest with respect to trading are relative markets move and of course volatility indexes.  Friday was one of those days that I live for as the Nasdaq-100 dropped over twice as much as the S&P 500 and the spread between the underlying volatility indexes widened out to levels not seen in years.  The chart below shows the spread between VXN and VIX between January 2013 and the close this past Friday.  The actual line is calculated by subtracting VIX from VXN since VXN is at a premium relative to VIX on a pretty regular basis.

VXN - VIX - End of Day

 

The VXN curve went into a form of backwardation as well with the 10% gain for VXN on Friday resulting in the front three month futures contracts trading at a discount to the spot VXN.  This can be determined as the market pricing in more risk in the tech and bio-tech space than for other sectors, come Monday we will see if the slide for technology versus other sectors is going to continue.

RVX VXN

Last Week in VIX Options and ETPs – 4/6/2014

This past week was a busy one for me.  In fact I write this from a hotel room in Omaha, NE where I will be attending a TD Ameritrade event this weekend.  Earlier this week I was in New York discussing SPX and VIX.  The point is I have spent a good portion of my week in hotels, airports (3 for 3 on delays), or speaking.  I haven’t had much time to watch the markets.  In fact Friday afternoon and then after the close were the only times I watched CNBC.  To hear the commentators I thought I was going to see VIX up 100% on a week over week basis or at least in the 20’s.

VXST - VIX - VXV - VXMT

 

Despite the big drop in the Nasdaq-100 Friday, VIX finished out the week under 14.00 and down a bit.  In fact the whole VXST – VIX – VXV – VXMT curve was lower on the week as can be seen above.  Despite calls that Monday may be a really ugly day, the VIX indexes do not really reflect that concern.  Not even on the short term (think VXST).  Just to make sure I wasn’t missing something I also checked out VVIX which is under 70.00.  It appears the concern is focused on tech and biotech in the form of the Nasdaq-100 being under a lot of pressure on Friday by association the CBOE NASDAQ-100 Volatility Index (VXN – 18.79) closing at a pretty big premium relative to the other equity market related volatility indexes.  Of course that’s a topic for another blog this weekend.

Options ETNs

Checking in on VIX Trading in Australia and India

Over the past few months VIX related trading has expanded globally with the Australia Securities Exchange (ASX) and National Stock Exchange of India (NSE) listing volatility futures contracts.   On October 21, 2013 ASX launched futures trading based on the S&P/ASX 200 VIX (A-VIX) with two consecutive monthly expirations being listed.   Currently A-VIX futures that expire in April and May are on the board.  The closing prices for Wednesday April 2 appear in the table below –

AVIX Quotes

 

Note the front month April future is practically at parity (actually a slight discount) to the spot  A-VIX Index while the May future is at a two point premium.  This is very similar to the type of pricing we see in the US when volatility is low.  The April contract still has two more weeks until expiration and since that contract is basically priced in line with the index it offers an opportunity get exposure that is very close to implied volatility as indicated by pricing of options on the S&P/ASX 200 Index.  This is true for market participants that are looking to be long or short volatility.

At the National Stock Exchange of India futures were listed on the India VIX where they are using the term NVIX as short hand to describe the index.  NVIX emanates from the underlying option market being options that are listed on the Nifty 50.  NVIX futures expire every week and currently there are three consecutive contracts on the board.  Recent closing pricing for NVIX and the current futures contracts appear in the table below –

NVIX Pricing

You need to move decimal points around to compare the NVIX futures pricing to the index.  The index price is 22.108 with the equivalent futures price being 2210.80.   For example, you can always go the other direction and take the NVIX futures price and divide by 100.  The April 7 contract price is 2394.50 – the equivalent price that offers a comparison to NVIX would be 23.945.  The risk premium in these futures contracts is pretty interesting I am aware there is a national election on the horizon in India, but am not sure if that has any influence on farther dated futures contracts.

Both the ASX and NSE versions of VIX trading are in their infancy.  I think as volatility trading continues to expand globally these two markets will be worth watching for volatility trading opportunities.  If you have more interest in either of these two volatility markets the links below are great places to find a wide variety of information.

ASX – www.asx.com

NSE – www.nseindia.com

Finally, since I’m talking about global volatility, it is probably worth mentioning that the 2014 Risk Management Conference in Europe has been scheduled for September 3 – 5 in County Wicklow, Ireland.  More information about that conference can be found at www.cboermc.com.

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