Weekend Review – Volatility Indexes and ETPs – 8/21/2016

For the second week in a row the S&P 500 Index related volatility indexes hardly budged. Three out of four were lower with the longest dated, VXMT, up slightly on the week.



We’ve ranted and raved in various forums about how VVIX has been holding up despite a lower VIX. It was kind of like the last holdout for higher equity market related volatility until this past week when it took a 12% dive.  This puts VVIX closer to the lower end of the historical range. I guess we will now focus on SKEW which is the sole index that remains relatively high.

VXX Table



Since the equity market bottomed in February both VXX and UVXY have given back all the early 2016 gains and then some. As long as contango prevails in the VIX futures term structure and VIX remains low we will probably continue to see SVXY widen the 2016 lead on the long funds.



I’ve started looking beyond broad based equity market volatility in this space.  This week the biggest moves to the upside came from the currency focused volatility indexes. If something is getting ready to upset the financial markets maybe it is macro in nature and the heightened risk is showing up in $BPVIX, $JYVIX, and $EUVIX.

Volatility Indexes


Finally, on Friday the CBOE Options Institute held the first of a series of focus classes. We spent the day covering all things VIX and Volatility with a great group of students. I actually like these sorts of classes because I always seem to come away with new things to work on based on student questions or comments.

One student noted that he likes to buy SVXY on any pull back of about 20% and this prompted another student to ask if he’d ever considered selling out of the money puts on SVXY. We fired up LiveVol Pro and took a look at the skew of SVXY options. A condensed version of that chart appears below showing the skew for SVYX options expiring on September 16th.



SVXY finished the week at 73.44 and we kicked around different 60 strike SVXY puts. The skew chart above shows the IV for September 16th SVXY 60 Puts is around 80%. With volatility like that priced into options we looked at the bid side for all the 60 strike puts expiring in September. With Weeklys there are actually five alternatives to consider.

SVXY 60 Put Bids


The premiums ranged from 0.35 for the September 2nd puts to 2.05 for the September 30th contracts. Of course this is the equivalent of being short volatility since a volatility spike can take 20% out of SVXY in just a day, but if a trader would be a willing buyer of SVXY on a dip to 60.00 the opportunity to get paid to do so exists since the IV is so high for out of the money puts on this ETF.

Weekend Review – VIX Futures and Options – 8/21/2016

VIX dropped a little as the equity market did a whole lot of nothing last week.  We retired the August contract on the open Wednesday morning and September took over as the front month.  With time to go to expiration (this is actually a five-week cycle) everyone seemed to notice the steep contango again.  What is interesting below is the behavior of the curve beyond October.  November and beyond gained a little ground despite all the contracts moving up in the pecking order of expirations.

VIX Curve Table


At least one trader decided that there is a possibility of higher volatility over the next few weeks.  In a rarity there was a fairly large out of the money call buyer in the market early Friday.  With VIX a tad over 12.00 a trader purchased 60,000 VIX Sep 25 Calls in three lots paying 0.29.  The September VIX futures contract was trading at 14.80 when this trade came into the pit as well.



The VIX is Low, But Should You Fasten Your Seatbelt?

VIX has spent the whole of August below 14, and remains – at time of writing – close to its lowest levels in two years.  But the present calm may be dependent on a short-term seasonal effect; and we are approaching the traditional period where it ends.

August is traditionally a quiet month for U.S. equities.  The usual deluge of corporate announcements, elections, and product launches attenuates to a trickle, while traders and investors decamp to their holiday destinations.  Then, in September and throughout October, the world returns to business, sometimes only then announcing or processing events that may have occurred over the summer.

The lack of news flow in August and subsequent ramp-up creates a seasonal effect in volatility, with VIX depressed over the summer months and rising through late August and early September.

The graph below shows the historical extent of such seasonality, plotting the average level of VIX in comparison to its one year trailing average at each point in the year.  The effect is not dominated by one or two outlier events, but instead appears persistent; the grey shaded area shows a similar pattern for the 25% and 75% percentile range of values.  Today’s value is well below the historical interquartile range as VIX is 30% below its average level for the past year.


Interestingly, there is a clear seasonal lull between late June and early August, and a significant increase towards the end of August.  The 35th week of the year showed, on average, the biggest rise in volatility.  Given that we are presently approaching the end of the 34th week of 2016, investors might wish to bear this history in mind.

Focus on VIX Class to be Hosted at CBOE Options Institute

The CBOE Options Institute is hosting the first in a series of classes that will focus on different aspects of option and volatility trading. The first class, appropriately named Focus on VIX and Volatility Products, will be held on Friday August 19th at CBOE. For those unable to make it to Chicago the class is also available online. Specific topics to be covered include

  • VIX and the behavior of volatility indexes
  • VIX futures and options price behavior
  • Trading VIX related Exchange Traded Products
  • Long, short, and neutral volatility strategies

In addition to CBOE instructors, Mark Sebastian will be on site to discuss his approaches to trading VIX and from noon to 1:00 we will be broadcasting an episode of Volatility Views on the Option Insider Network from the CBOE Classroom.

The options institute instructors will also be available to answer questions about all things related to using volatility as a tradable asset. As an extra bonus all attendees will receive a copies of Option Strategies for Advisors and Institutions as well as Volatility Trading Strategies (scheduled to be published in the fourth quarter of 2016) by Russell Rhoads. Early bird pricing for this class ends this coming Friday August 5th..

Weekend Review – Volatility Indexes and ETPs – 7/24/2016

VIX was the biggest mover among the four S&P 500 related volatility indexes this past week.  VIX dropped more than 5% while VXST lost 0.39% and VXV was down 1.19%.  Longer dated volatility actually rose last week with VXMT gaining 0.28%.  The curve remains very steep which I’m taking as uncertainty abounding with respect to the balance of 2016, especial the fourth quarter of 2016.



Most the data points on the table below are as one would expect after a relatively quiet week.  VVIX moving up is a bit surprising, but the upper 80’s has been a common area for VVIX this year.  At least when VIX is hovering around the low end of this year’s range.

VXX Table


The year to date performance for VXX and UVXY continues to suffer from the low volatility environment while SVXY is now up over 19% for the year.  It should be noted that SVXY has not recovered from the hit taken last fall and is still much lower than the all-time high of 97.40 just over a year ago.



The table below ranks the full suite of volatility indexes quoted by CBOE based on their performance last week.  Oil Volatility was the big gainer, but even in the high 30’s is at the lower end of the recent range.  Gold was a close second which may indicate some inflation fears are emerging.  At the opposite end of the table are VXIBM and VXGS which dropped after IBM and GS reported earnings last week.

Vol Indexes


Finally, I came across an interesting trade that is taking a longer term look at volatility moving down.  With VXX at 11.11 someone sold the VXX Jan 2017 20 Calls for 0.85 and then purchased the VXX Jan 2017 12 Puts for 2.95 and a net cost of 2.10.  This trade works out with VXX below 9.90 on the third Friday of January next year.  Interestingly I think that’s this expiration coincides with the next presidential inauguration.  I doubt the two are connected, but you never know.


Weekend Review – VIX Futures and Options – 7/24/2016

Last week VIX broke the 12 level, which surprised some market participants who felt 2016 was going to be a roller coaster ride that kept VIX at elevated levels.  I have already spent time on the Wall of Shame as I count as someone who felt VIX was spend more time around 20 than it has in several years this year.

Do note on the term structure chart below that the shape of the curve is steep.  Those of us grasping at straws with respect to elevated volatility see that as a glimmer of hope for higher VIX sooner rather than later.  Also, check out the October contracts which was up a bit last week despite the 5% drop in VIX.

VIX Curve Table


One trader late Friday came in with a spread trade that does well without a spike in VIX and does well if VIX makes a monster move to the upside in the next few weeks. The issue would be somewhere between those two outcomes.

With spot VIX at 12.02 and the August future at 15.30 someone sold 7,500 VIX Aug 18 Calls at 0.77 and then purchased 15,000 of the VIX Aug 24 Calls for 0.29 which comes to a credit of 0.19 per 1 x 2 spread.  As long as VIX remains under 18.00 between now and August expiration this trade ends up with a profit equal to the credit.  To the upside a spike in VIX may result in some trading around this position.  Holding through expiration, which is unlikely if we do see a volatility event, VIX needs to higher than just a tad lower than 30.00.



Weekend Review – VIX Futures and Options – 7/17/2016

With VIX testing 2016 lows this past week the soon to be retired July future headed lower at a slightly faster rate than VIX dropping 6.43% versus 4.02%.  Even with the bigger loss on the week the July contract finished the week at more than a one premium to VIX.  We will see on Wednesday morning if the futures or the spot index win the tug of war into July settlement.  I would be remiss if I didn’t point out the steepness of the VIX curve from August to December.  VIX is low now, but the futures are braced for some sort of move higher.

VIX Curve Table


In a previous blog I mentioned VIX call buying that appeared to be short covering on Friday.  Here are the two instances that I came across.  First, one good trade appears to have sold 1000 of the VIX Jul 27th 22 Calls for 0.75 back on July 1st.  They came in Friday and bought those contracts back at 0.15 for a nice profit of 0.60.  The second trade has a couple of moving parts.  Back on July 6th there was a seller of 3000 VIX Jul 27th 15 Calls at 3.12 who also purchased 3000 VIX Jul 27th 23 Calls for 0.70 and a net credit of 2.42.   They closed on leg of this trade by covering the short calls for 0.85 on Friday and chose to leave the long piece of the spread trade open.  This means they have booked a profit of 1.57 and if we get any volatility event in the next few days they may improve on that outcome by cashing out the long 23 Calls.

Weekend Review – Volatility Indexes and ETPs – 7/17/2016

Short term volatility was the big loser among the four S&P 500 related volatility indexes as VXST lost over 10% last week.  This was more than two times the drop in VIX and more than three times the drop in VXV and VXMT.  The result is a pretty darn steep curve indicating concerns about the second half of this year for the stock market are lurking around in option volatility.



Despite the drop in VIX the VIX of VIX rose last week.  As I typed that I realized that two of the bigger VIX option trades I saw on Friday involved traders covering short VIX call positions.  Keeping that in mind I may be accurate in saying that the higher VVIX is due to the move lower in VIX.  Finally, another thing that stood out on the table below was TYVIX managing a gain last week as well as the 10-Year T-Note futures experienced a relatively big drop.

VX Table


Since VIX remained low and the front two month futures lost value VXX and UVXY were lower and SVXY gained value.  For the year SVXY is now up over 14%, VXX is down almost 42% and UVYX has lost over 76% after being up over 100% for the year.



I’ve decided to add a new weekly update to this blog.  I’ve neglected many of the other volatility indexes quoted by CBOE so I’m going to include an update of the performance of those indexes as a final piece to this blog.  I sorted last week’s volatility index performance from biggest gain to biggest loss and the winner on the upside was VXIBM.  This is a function of IBM reporting earnings this coming week and I wouldn’t be surprised to see VXIBM on the other side of this table next week.  The big loser was VXEFA which may be best described as a representation of all developed markets outside of North America.  I’m going to attribute this to a resumption of normalcy in Europe  after the final panic about Brexit came out of the markets.

Vol Indexes Big


New SPX Monday-Expiring Weeklys Options To Launch Next Month

CBOE recently announced that it plans to list S&P 500® Index (SPX) Monday-expiring WeeklysSM options, beginning August 15, pending regulatory approval.  With the expected introduction of SPX “Monday Weeklys,” CBOE will offer SPX options with Monday, Wednesday and Friday expirations.

SPX Weeklys are one of CBOE’s fastest-growing products, with volume in 2015 setting a 10th consecutive annual record. The chart below shows that SPX Wednesday-expiring weekly options set new volume records in every month since their introduction last February.

1 - SPX Wed Weeklys per month thru June


The CBOE News Release noted that CBOE Holdings CEO Edward T. Tilly said –

“We are pleased to further expand our SPX product complex and build off the successful February launch of SPX Wednesday Weeklys with the introduction of SPX Weeklys with Monday expirations. Weeklys provide greater trading precision and with new Monday Weeklys, investors will be able to efficiently hedge over-the-weekend risks.  With three different expirations in our SPX Weeklys product line, investors will have even more opportunities and flexibility when trading the S&P 500.”   



Trading Hours — Extended and Regular Trading Hours currently in place for the existing SPX/SPXW options will be followed.

Ticker Symbol — SPX Monday-expiring Weeklys series will be available for trading under option symbol SPXW.

Expiration and Final Trading Day

  • SPX Monday-expiring Weeklys options are PM-settled.
  • The expiration date (usually a Monday) will be identified explicitly in the expiration date of the product. If the Monday of the week in which the options expire coincides with an Exchange holiday, the expiration date will be on the next business day (usually a Tuesday). The expiration date for each option is also the last trading day for that option.
  • SPX Monday-expiring Weeklys may expire on any Monday of the month, other than a Monday that coincides with an End-of-Month (“EOM”) expiration date.
  • Expiring SPX Monday-expiring Weeklys options will cease trading at 3:00 p.m. Central time on their last trading day. All non-expiring SPX Monday-expiring Weeklys options will continue to trade until 3:15 p.m. Central time.
  • SPX Monday-expiring Weeklys option series will not be included in the strip of option series that will be used to calculate the CBOE Volatility Index® (VIX®) spot value or the exercise or final settlement value of VIX Index options and futures.



Contracts with weekly expirations allow investors to implement more targeted buying, selling, spreading or hedging strategies. In addition, futures and options with weekly expirations can help investors take advantage of breaking news or known economic events, such as earnings, monthly U.S. economic reports and Federal Reserve announcements.  Additional information on Weeklys options and futures can be found at www.cboe.com/Weeklys. CBOE pioneered short-term options trading in 2005 by introducing the first weekly expiring options contract.



The SPX skew chart below shows implied volatilities at various strike prices and 12 upcoming expiration dates in July and August for SPX options. In general, the implied volatilities for out-of-the-money (OTM) SPX puts were higher than the implied volatilities for at-the-money SPX options. The OTM puts often are used for portfolio protection.

2 - SPX skew Livevol July 11

Beginning next month, after the introduction of the SPX Monday-expiring Weeklys options, there will be even more SPX expirations in near-term months.


The microsite for SPX Weeklys options is at www.cboe.com/SPXW.

For an overview of SPX Monday Weeklys options contract specifications and other operational details, refer to CBOE Regulatory Circular RG16-119 at –


What is Volatility Saying about the Price of Gold?

I’ve kept my eye off gold this year and boy have I missed a ride. The GLD ETF is up about 28% in 2016 which leaves most markets in the dust. Apparently #Gold is a trending topic today on Twitter as well. S0 even though the shiny metal is higher, is there any opportunity being anticipated for the rest of 2016?

To get a feel for what the market thinks, I always consult option implied volatility. Luckily CBOE has the CBOE Gold ETF Volatility Index (GVZ) where I can get an idea if option players (who we all know are the smartest of traders) think more price action for gold is on the horizon. The chart below compares GLD and GVZ daily price action in 2016 through Thursday.



GVZ is off the highs for 2016, but still above this year’s average of about 19.   We can take this as the option market is still a bit on edge with respect to future price moves. Traders who like volatility should be happy to hear this. So I took things a step further and look at the option skew for the weekly expirations for GLD from July 15th through August 19th. I grabbed the data from LiveVol and created the chart below.

Gold Skew


GLD was just over 129.00 when I put this together so I looked at options with strike prices from 124 to 134. Note to the left all the lines are pretty flat, with the exception of next Friday’s expiration. Going in the other direction the curves all seem to trend higher. That means out of the money call implied volatility moves up as we go farther out of the money. Another way to think of this is traders selling the puts are not demanding as much premium as call sellers. Traders want to get paid to take on risk and according to this chart they are demanding a higher risk premium to take the other side of call buyers.

So where is the risk? The option guys say the risk is for a move to the upside. Are they right? Time will tell…


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