Last Week in VIX Options and ETPs – 4/13/2014

What a difference a week makes especially in the volatility world.  Based on an equity market drop, which came mostly at the end of the week, of 2.65% last week VXST was up over 33% and VIX climbed a hair under 22%.  The shift in the curve is pretty dramatic, going from what we are used to in the form of contango to a bit of backwardation.  The curve doesn’t really depict much in the form of panic so there is plenty of potential upside for the shorter dated indexes if the S&P 500 keeps up these days where the index drops over 1%.


The long volatility exchange traded products are heavily weighted toward the May VIX futures contract.  On the open Friday VXX was composed of just over 90% May futures and only 10% April.  VIX was up 22% last week, but the May VIX contract rose 5.71% which resulted in VXX putting up a gain of about 7%.

Options ETNs

Last Week in Russell 2000 and NASDAQ-100 Volatility – 4/13/2014

Last week, especially the end of the week was an ugly one for the equity markets.  The big loser among the S&P 500, NASDAQ-100, and Russell 2000 was the Russell 2000 which lost about 1% more than the other two broad based market indexes with associated listed volatility markets.  Despite the underlying market being down more than the S&P 500 and NASDAQ-100, implied volatility on RUT options actually did not react as much to the upside as VXN or VIX.  I’ve been keeping a close eye on the spread between VXN and VIX and the spread between RVX and VIX as there has been more risk priced into RUT and NDX options recently than SPX options.  The chart below shows the daily closing prices of VIX subtracted from RVX (Red Line) and VXN (Blue Line) from May 2013 through this week.



Note that both spreads are bordering on recent highs.  It appears option players are more concerned about tech stocks and domestic stocks than the multinational companies that make up a good portion of the S&P 500.  Both the VXN and RVX curves went into pretty defined backwardation last week (charts are below) which further displays concerns about the performance of the NDX and RVX over the next few months.


Last Week in Emerging Market Volatility – 4/13/2014

Before talking about the volatility markets I did want to point out an emerging market trade that caught my eye on Friday.  Mid-morning there was a buyer of 12,000 EEM Jun 40.00 Calls at 2.62 that also sold 12,000 EEM Jun 43.50 Calls for 0.72 and a net cost of 1.90.  EEM was around 41.65 at the time of this trade and ended up closing at 41.83.  The payoff at June expiration is below –

EEM Payoff

This trade appears to be based on an outlook that the iShares MSCI Emerging Markets ETF (EEM – 41.83) will rise 4% or more between now and June 20th.  A 4% move puts EEM pretty close to the short strike of 43.50.  The break-even level is 41.90, just pennies from Friday’s close.


The S&P 500 is now down 1.77% for 2014, but you would not know that from watching emerging markets.  EEM is flat for 2014 and the Brazilian market is the champ with the iShares MSCI Emerging Market ETF (EEM – 41.83) up 6% for the year.  However, despite EWZ putting up some pretty strong performance lately implied volatility of EEM options as measured by the CBOE Brazil ETF Volatility Index (VXEWZ – 30.35) remains at elevated levels and the flat curve is also displaying some real uncertainty around what is next for the host of the 2014 World Cup.


Last Week in VXST – 4/13/2014

CBOE picked a heck of a week to launch VXST options as the S&P 500 lost 2.65% last week which is the worst weekly performance since May 2012.  Of course months of planning went into the successful launch of VXST options on Thursday and there was no way the price action in the S&P 500 could have been anticipated.  There was respectable volume on Thursday and Friday for VXST options despite the S&P 500 dropping a total of 3% over the first two days of VXST option trading and VXST rising almost 40% over that period of time.  I say despite this performance because many traders will use VIX (and now VXST) options to be positioned for a rise in volatility.  That’s pretty difficult to do when the market is experiencing a volatility spike.

There was one nimble trader that stepped in early on Thursday to get positioned for the end of week rise in VXST.  When VXST was still in the lower teens there was a buyer of 2000 VXST Apr 16th 16 Calls that paid 0.30.  Those options closed Friday with the bid side at 1.50.  I’ll be the master of understatement here and say that’s not such a bad first VXST option trade.


Exciting First Day for VXST Option Trading at CBOE

The first day for VXST option trading is history and what a day it was in the equity markets with the S&P 500 losing just over 2% and the NASDAQ-100 dropping over 3%.  Operationally trading in the new VXST option market was smooth as any established market despite the extra equity market volatility.  Just before the close I spoke to some traders in the VIX pit and I was a little disappointed to hear that none of the trades today appeared to be spread trades.  I do believe in time some very clever volatility traders will find methods of combining various VXST options (or even VXST and VIX together) to come up with their desired exposure to market volatility.  The day over day activity in VXST and the current futures contracts appears below –

VXST 492014 4102014

Note VXST rose about 30% and the front week April 16th VXST Future was up over 20%.  Any time we have seen a rise in equity market volatility over the past couple of years the result has been a quick drop back to lower levels.  The 0.75 discount for the near dated VXST future relative to the index can be taken as the volatility market expecting some sort of drop in the index as well.

On a final note, the biggest VXST option trade was a purchase of just over 2,000 of the VXST Apr 16th 16 Calls for 0.30.  This trade actually went off pretty early in the day when VXST was at much lower levels.  Whoever was behind this trade is probably pretty happy with VXST options as the bid price on this option was 0.95 on the close today.  Not so bad for a first VXST trade.

VIX Properly Reflecting Fear

Over the past couple of weeks I have been out and about representing CBOE and The Options Institute in diverse places such as Schaumburg, IL, San Jose, New York, and Omaha, NE.  On these travels I have often been asked about the persistent low level for VIX despite pockets of weakness in the stock market.  Yesterday is a prime example as the S&P 500 sold off over 2% and VIX closed the day under 16.00.  My understanding is that it was mentioned on one of the business networks this week that investors have more alternatives to hedge so VIX does not reflect fear as it once did.  I could not disagree more with that statement.  VIX reflects the lack of fear and is correctly doing so.  The chart below shows daily closing prices for VIX and the S&P 500 from the beginning of 2014 through the end of the first quarter in 2014 and is a good illustration of why I believe VIX is properly reflecting the lack of fear.

VIX - SPX Spikes

Note the four places on the chart above where I have highlighted spikes in VIX over the past 15 months.  The S&P will have hit a small rough patch and VIX moves up based on concerns that the market drop may turn into a protracted correction or bear market move.  Now note what happens after these spikes in VIX, the S&P 500 resumes a move to the upside and VIX returns to lower levels.  This pattern continues to repeat itself investors and traders become less fearful of the next drop.  The last real volatility event in the US occurred back in August 2011 which seems be quickly becoming a distant memory for many traders.

Part of the argument about VIX not reflecting fear is that there are more alternatives to hedge against a drop in the equity market.  This is an argument that I have a tough time with when I consider exactly what VIX represents.  VIX is the implied volatility of options based on the S&P 500 or SPX Index options.  Average daily volume for SPX option trading in 2013 was about 823,000 contracts which was a 17% increase over 2012 average daily volume.  So far in 2014 average daily volume for SPX options is running at about 870,000 contracts.  Many listed markets in the US have been experiencing negative or flat volume growth.  If there are new hedging alternatives that are impacting the level of VIX this would mean that SPX volume should be shrinking, not growing.

VIX is doing what it has done for over 20 years – it is properly reflecting the lack of concern in the market when the S&P has a day like yesterday.  The market has become accustomed to small corrections followed by a new high in the S&P 500 and VIX is quantifying that complacency through being a relatively low levels.  When we get the next real volatility event that should quiet the critics that say VIX has undergone some sort of change – fear will return and with it higher levels for VIX.

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 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 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

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).


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 –


 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.


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.


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)


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.


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 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.


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.

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



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 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.



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