The Election and Sector Volatility

So, last week I looked at the implied volatility of various option markets that expired just before and just after next week’s election.  You can read all about that here.  Of course, as we all know, things changed a bit last Friday.  When things change, I start running numbers.  First I updated the table from last week where the IV for Nov 4th and Nov 11th options were compared for a variety of sectors, indexes, and one country fund.


The top part of the table above compares the implied volatility for the S&P 500 (SPX), Nasdaq-100 (NDX), and Russell 2000 (RUT).  The implied volatility for Weeklys expiring just after the election is at a 33% premium for SPX options, 24% for the RUT, and about 21% for NDX.

Note that EWW implied volatility is 77% higher for the November 11th options when compared to the November 4th contracts.  This was the highest of the fund premiums last week as well.  The second and third funds on this table represent healthcare and those funds were in the same place last week.

I also looked at the change in November 11th volatility between the close on 10/25 and the close yesterday (10/31).  Those changes appear below.


The broad-based index volatility rose between 32% and 36% which was surprisingly consistent.  For the sector funds, health care volatility rallied more than EWW volatility.  I could understand this with respect to XLV, since November 11th IV was less than half of that for EWW last week, but Biotech volatility was already higher than EWW so the 60% move is nothing short of impressive.

We have (hopefully) just over a week until this election is behind us.  I’m going to closely watch market volatility, both broad based index and sector fund, to see where the market sees post-election risk and continue to report back in this space.

Weekend Review – VIX Futures and Options – 10/30/2016

VIX had a pretty stellar week, aided by the new on Friday, to finish over 20% higher. Spot VIX may be buying into a new scandal, but the futures did not.  The curve is as flat as it has been in months which tells me traders expect this move in VIX to be short lived.



We are all aware that VIX made a little move on Friday as new of a new chapter in the Clinton email saga commenced.  As the week came to an end on trader took advantage of a rise in VIX and the December futures contract to place a pretty basic trade.  With VIX at 16.19 and the December contract at 17.05 there was a buyer of just over 4,000 VIX Dec 16 Puts for 1.45.



I know that’s short of exciting, but the December futures always are a bit of an anomaly based on holiday calendar.  We have Christmas, New Year’s, and MLK holidays between December VIX settlement and the S&P 500 options that determine the settlement price.  It may be a trader has been waiting to pounce and purchase Dec puts.  Friday’s new reaction may have given them that opportunity.

Weekend Review – Volatility Indexes and ETPs – 10/30/2016

As a good number, but not all (some of us are White Sox fans) of the traders on the floor at CBOE were starting to think about where they were going to be that evening to watch Game 3 of the World Series, some news broke that shook the equity markets.  I don’t need to regurgitate all that here.  In fact, regurgitate is a good word to describe the election process this year.



The curve below is partially a result of the uncertainty around the election, but also reflects a relationship that I think would have existed with or without the newest twist to the election.  Note the purple box below highlighting the difference between VXST and VIX with VXST at a slight premium.  This time last week VXST was calculated using October 28th and November 4th options.  Now, VXST includes options expiring the Friday after the election. We will never know exactly how much of a boost that gave to VXST, but it must count for something.

I’ve already noted the VXST performance from last week.  Other things that stand out are a rebound in  TYVIX after dipping below 4 last week and the bump up in VVIX which settled under 100 after topping that figure on Friday.



Both VXX and UVXY had good weeks, but it is a little too little and a little too late as both funds have suffered from steep contango and low VIX for most of 2016.




Finally, a look at the 29 volatility indexes shows broad based volatility up across the board.  On the flip side, four of the five losers last week were individual stock volatility indexes.  Three of those were the result of earnings.  The other loser was volatility on the British Pound which has been very strong of late and was probably due for a rest.


VVIX Index Spikes 21% on News of Investigation – By Matt Moran

OCT. 28 – On Friday afternoon a news story at noted that –

“Worries about a surprise election outcome resurfaced anew in financial markets on Friday afternoon after the Federal Bureau of Investigation uncovered new evidence in its investigation of Democratic presidential candidate Hillary Clinton‘s email server. … The news sent ripples through stocks, currencies and commodities in afternoon trading. The S&P 500 slumped to the day’s lows in recent trading and the CBOE Volatility Index, the market’s “fear gauge,” shot to its highest level in six weeks. …”


The CBOE VIX of VIX Index (VVIX) is an indicator of the expected volatility of the 30-day forward price of the VIX. The prices of VIX options are used in the VVIX calculation. On Friday afternoon the VVIX Index had a quick rise of more than 21% to an intraday high of 106.66.



The popular CBOE Volatility Index® (VIX®) also spiked Friday afternoon. The VIX Index ranged from a low of 14.65 to a high of 17.35 during the trading day.


While many folks follow the VIX Index, volatility traders often focus more on tradeable instruments such as the VIX futures. The VIX November futures (expiring on Nov. 16) also spiked mid-day Friday, and during the Friday trading session (which runs more than 23 hours) the VIX November futures prices ranged from a low of 15.74 to a high of 17.08.


The S&P 500® Index (SPX) had a drop of about 20 points mid-day Friday, and for the entire day the index was down 6.63 points.


A Bloomberg report noted that “American equities erased gains and Mexico’s peso, which is seen as a proxy for market perception on the U.S. vote, declined against most major currencies. …”



Visit the Product Specific Strategies section of the CBOE website to learn more about how index options can help you manage your investment portfolio in times of market uncertainty.

Sunday Night Trading of VIX and Stock Index Futures and Currencies During the Presidential Debate – By Matt Moran

October 9, 2016, 11:50 pm CT — Regarding the financial market movements Sunday night around and during the second presidential debate, below are some highlights.


Trading volume for futures on the CBOE Volatility Index® (VIX®) on Sunday night from 5:00 p.m. through 11:15 p.m. exceeded 2,250 contracts.

The chart below shows that the Sunday night prices for the October VIX futures (with an expiration date of October 19) were down 0.345 points at around 9:55 pm C.T. (when compared to the Friday night close).


The table below shows the 14 tickers and expiration dates for VIX futures.



A CNBC story stated that —

“… No clear winner emerged from the second U.S. presidential debate Sunday night, based on several analysts’ interpretation of market reaction — or lack thereof. … .U.S. stock index futures held slightly higher near earlier levels throughout the entire debate. S&P 500 futures were about 5 points higher and Dow Jones industrial average futures were about 31 points higher, as of 11:08 p.m. ET.”           


A Bloomberg news story noted that —

“… Mexico’s peso pared its climb after Donald Trump and Hillary Clinton sparred in the second presidential debate. Crude extended losses and the yuan weakened to a six-year low.  The peso, seen as a bellwether for traders’ views on Trump’s prospects, added as much as 2 percent as the Republican candidate was questioned about a video in which he talked about women in vulgar terms, before trimming gains to 1.4 percent after the debate concluded …”


Please visit the VIX microsite at for more information on VIX futures and options.

For an earlier blog that discusses market movements during the first presidential debate, please visit

Will VIX Futures Prices Move During the Sunday Night Debate? – By Matt Moran

OCTOBER 7. 2016 – On the night of September 26 a debate-record 84 million people tuned in to watch the first of three U.S. Presidential debates. During the debate there were movements in the prices of futures on the CBOE Volatility Index® (VIX®), S&P 500® futures, and the Mexican peso (see below for a chart and more information).

If you would like to follow the movements of VIX futures during the upcoming Presidential debate on from 8:00 to 9:30 p.m. CT this Sunday, October 9, here are three resources for you –


The trading hours for VIX futures begin at 5:00 p.m. Chicago time on Sundays, and VIX futures are offered more than 23.5 hours a day during the trading week Last month the average daily volume for VIX futures during extended trading hours (from 3:30 p.m. to 8:30 a.m.) was 31,901 contracts.



At around noon Chicago time on Friday, October 7, the VIX Index spot price was 13.88, and the VIX futures prices are shown in the table below.



During the first presidential debate on September 26 (from 8:00 to 9:30 p.m. CT) –

  • VIX futures prices fell,
  • S&P 500 futures prices rose.
  • Mexican peso rose in value (vs. U.S. dollar).

As shown in the chart below, during the 90 minutes of the first debate, the VIX October futures fell by about 0.50 points. (Please note that the new trading day for VIX futures usually starts at 3:30 p.m. the previous calendar day, and so on the calendar night of September 26, the September 27 trading day already had begun).


A 1290-word analysis by Professor Justin Wolfers of the University of Michigan noted that —

” … During the debate, the overnight [stock index] futures markets rallied, raising the value of broad stock market gauges like the Standard & Poor’s 500-stock index by two-thirds to three-quarters of a percentage point. This was a consequential move, … the rally occurred between 9 and 11 p.m. on a Monday, typically a fairly tranquil time and, in this case, a stretch in which there was no other important economic or financial news. … the rise in stock prices was unusually large for that particular time period — larger than during the same window on all but one of the 200 previous Mondays. It appears to be a statistically significant move … ”

Regarding the Mexican peso, a September 27 news story at noted that —

“As Trump and Hillary Clinton sparred on live TV, one key financial barometer of the Republican nominee’s prospects started moving sharply: the Mexican peso soared more than 2% against the dollar. In recent weeks, the Mexican currency has been moving in the opposite direction to Trump’s poll numbers. As they have improved, the peso has dropped, hitting an all-time low against the dollar ahead of Monday night’s debate. Its sudden leap during the debate was a clear reaction to Trump’s performance, according to Ihab Salib, head of international fixed income at Federated Investors. …”


To learn more about the ways in which VIX futures and options can be useful tools in portfolio management, please visit

Weekend Review – Volatility Indexes and ETPs – 10/2/2016

The VXST – VIX – VXV – VXMT Curve is a consistent way to look at different S&P 500 Option Implied Volatility time frames.  All four indexes moved up a bit last week, with the curve shape maintaining a pretty steep shape.


The ETPs were a mixed bag last week.  VXX and the other long funds that focus on the short end of the curve were higher last week.  VXZ, which focuses on the longer end of the curve was lower, being a victim of the steep contango that has existed in the VIX curve for most of 2016.  SVXY and XIV were lower, but ZIV (inverse of VXZ) moved up a tad.


With nine months behind us, SVXY is up strong and both VXX and UVXY have had a tough year based on VIX at relatively low levels this year.


For the second week in a row individual stock implied volatility lead the charge higher with VXGOGL and VXAZN moving higher by over 20%.


Late Monday, with VXX around 35.60 and up 1.80 on the day a calendar spread came into the VIX pit using VXX options half the trade has expired as the VXX Sep 30th 37 Calls were sold at 0.71 and the VXX Oct 21st 37 Calls were purchased for 2.17 and a net cost of 1.46.  The first payoff diagram shows the result for the trade as of this past Friday.


Assuming no changes, the position is now long the VXX Oct 21st 37 Call at a cost of 1.42, which is a bit more than the cost of this call as of Friday.  The payout below is upon the option’s expiration and assuming that no other trades occur.  However, I wouldn’t be surprised if another shorter dated call is sold if VXX makes another move to the upside.


Weekend Review – VIX Options and Futures – 10/2/2016

The VIX curve did The Twist (cue Chuck Berry) as spot VIX rose 8% and the front month October contract was up by just over 1%.  Beyond the front month all things were red.


The highest closing level for VIX last week came on Monday with the spot index finishing the day at 14.50.  One trader had an expectation that this move up would very short lived and decided to sell a call spread with VIX Weeklys Options that expired on the open this past Wednesday.  Just a few minutes before the close there was a seller of the VIX Sep 28th 13.50 Calls at 1.17 who bought VIX Sep 28th 15.00 Calls 0.42 for a net credit of 0.75.  The payout diagram below assumes the trade was held through Wednesday settlement.


For those that are aware that the corresponding VIX futures pricing comes into play with respect to VIX options pricing I’ll add that the Sep 28th VIX Future closed last Monday at 14.60, basically in line with spot VIX.  The risk reward of this trade was a gain of 0.75 or a loss of 0.75 with the break-even at 14.25.  I highlighted Wednesday’s VIX settlement on the payoff diagram below which was safely below the short strike of 13.50 in this trade at 13.05.

New Wilshire Study: BXMD and PUT Indexes Offered Higher Returns, Lower Volatility Over Three Decades

By Matt Moran

SEPT. 21, 2016 – Wilshire Associates recently was ranked as one of the world’s ten largest investment consultants, due to the fact that it had more than $1 trillion in worldwide institutional assets under advisement, according to the survey published in the Nov. 30, 2015 issue of Pensions & Investments.

A new study – “Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis – was released today. The study was commissioned by CBOE and authored by Wilshire Analytics’ Applied Research Group. It is the first major study that surveys 30 years of data related to benchmarks engaged in the buying and/or selling of index options.

Wilshire Analytics analyzed the performance of several indexes over a period of 30 years, from June 30, 1986 through June 30, 2016, including five indexes that sell and/or buy options on the S&P 500® (SPX) Index:

  • CBOE S&P 500 BuyWrite Index (BXM)
  • CBOE S&P 500 30-Delta BuyWrite Index (BXMD)
  • CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ)
  • CBOE S&P 500 5% Put Protection Index (PPUT)
  • CBOE S&P 500 PutWrite Index (PUT)

The performance of these indexes was compared with certain other key stock, bond and commodity indexes that represent asset classes typically found in the investment portfolios of institutions and individual investors.


Key findings of the 30-year study include:

  • Higher Absolute and Risk-Adjusted Returns: Two indexes that sold SPX options every month to collect option premium income – PUT and BXMD – both had higher absolute returns and higher risk-adjusted returns than the other indexes studied.
  • Lower Volatility: Each of the five option-based indexes had lower volatility than all the other indexes included in the study, other than the fixed-income index.
  • Less Downside Risk: The maximum drawdown for the options-based indexes was 24 percent lower, on average, than for the S&P 500 Index.
  • Market Capacity and Liquidity: The notional value of SPX options’ average daily volume grew significantly over the last 10 years; it was more than $200 billion for the 12 months ended June 2016, the most recent year studied.
  • Pension Plan Allocations: Analysis of actual pension plan allocations suggests plan sponsors would have benefited from the addition of index-based buy-write option strategies.


As shown in the first charts below, over the three-decade period, the option-selling indexes (BXMD, PUT and BXM) all had higher returns than the option-buying index (PPUT) and the MSCI EAFE and S&P GSCI indexes. Index option-selling indexes can benefit from the fact that the implied volatility usually has exceeded realized volatility, as is shown in Exhibit 8 of the study.




The five options-based indexes are shown in the triangle symbols on the Efficient Frontier chart.



A new “heat map” uses color coding to rank returns across asset class by year (within each column).




Over the past 15 years, option-writing strategies, particularly the BXMD and PUT strategies, typically had above-average returns and were rarely among the lower-performing asset classes.  Other asset classes were occasionally top performers but also were ranked at or near the bottom more than once. Past performance is not predictive of future returns.  Sources:  Bloomberg, CBOE, St. Louis Federal Reserve Bank and Wilshire Associates.


After hearing about the strong performance of certain CBOE benchmark indexes, institutional investors often ask me about market capacity for SPX options. The study presents a chart that shows that the estimated notional value of average daily volume in SPX options grew to more than $200 billion in the last 12 months studied.




For links to the entire new paper by Wilshire Analytics and to more information about CBOE benchmark indexes, please visit



Weekend Review – VIX Options and Futures – 9/11/2016

The streak of SPX doldrums came to an end on Friday with the orderly drop of over 50 points for which resulted in VIX rising to 17.50.  Everything worth noting happened on Friday which may have added to the angst that resulted in the S&P 500 closing near the daily lows and VIX closing near the daily highs.

VIX Curve Table

Early Friday when VIX was at 13.93 and the big move was just getting started there was a split strike trade that came into the pit.  With the October future at 16.35 a trader sold over 12,000 VIX Oct 13.50 Puts for 0.31 and then purchased the same number of VIX Oct 25 Calls for 0.64 and a net cost of 0.33.  The payout shows up below.


As noted at the beginning of this blog the October VIX contract settled at 17.875 or over 1.50 higher than when this trade was executed.  This led me to check closing prices for the two options in this spread.  The 13.50 Puts could be repurchased for 0.35 and the 25.00 Calls sold at 1.00.  Therefore, the spread that cost 0.33 to enter finished the day at 0.65 or a penny under a double.


  • Recent Comments

  • Tags

  • authors


  • Quick Links

  • Blogroll

  • Follow Us

  • Archives