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.

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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 –

 

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.

Last Week in VIX – 3/30/2014

Last week both the S&P 500 and VIX were lower.  It is well known that the historically the relationship between VIX and the S&P 500 means that the two indexes should move in opposite directions.  The price action resulted in an email question asking if the recent week over week action is an indication that stocks are going higher.  That prompted some digging into the numbers.  The table below is a summary of relative weekly price action between the S&P 500 and VIX since January 2000.

VIX vs SPX

 

There are 742 weekly observations and those that can do some quick math may notice that the numbers do not add up to 742 nor do the percentages add up to 100%.  That is due to there being three weeks where VIX was unchanged on the week.  What are the odds of that?  Actually, based on history, the chance of an unchanged VIX on a week over week basis is 0.04%.  The important number for today is that there have been 69 instances of both VIX and the S&P 500 losing value over the course of the same week.  I focused on that and found that 30 of the previous 68 instances of both dropping resulted in the equity market being higher the following week.  So a little less than 50% of the instances where VIX and the S&P 500 dropped on the same week the S&P 500 closed the following week higher.  So basically, both moving lower last week isn’t much of an indication of what is to come over the near term.  Sometimes the answer to a question is a non-specific response and that is the result I got checking out VIX and the S&P 500 being in sync to the downside.

VIX

Last Week in Russell 2000 and Nasdaq-100 Volatility – 3/30/2014

Last week the S&P 500 lost about half a percent while the Nasdaq-100 and Russell 2000 got hit pretty hard.  The Nasdaq-100 was off about 2 ¼% and the Russell 2000 was down by just over 3 ½%.  Both VXN and RVX rose last week gaining over 4% and over 8% respectively.  Ever since the CBOE Futures Exchange launched futures contracts on both VXN and RVX I have kept a close eye on the spread between both VIX and VXN and VIX and RVX.   This past week with VXN and RVX moving up so much and VIX dropping I decided to take a look at the front month futures contract spread, specifically the spread as determined by the April RVX contract minus the April RVXI futures.  The chart appears below –

RVX - VIX

 

The bottom (purple) line is the important one.  It shows the spread as determined by subtracting VXJ4 (Apr VIX) from VUJ4 (Apr RVX) since the first day of trading for VUJ4.  On Friday that spread was at 6 points which is the highest is has been over the history of VUJ4.  Not only is heightened risk in domestic stocks relative to global stocks showing up in the indexes, but it is also showing up in the futures contracts as well.

VXN RVX

Last Week in Gold and Oil Volatility – 3/30/2014

There are certain weeks at The Options Institute where we have too much going on.  This past week was definitely one of those weeks.  We had multiple visitors, webcasts, and classes going on each day.  Do not take that as a complaint, it is more of an explanation that I was not able to really watch the markets as closely as I like to this past week.  I was well aware that the SPDR Gold Shares ETF (GLD – 124.56) was lower on the week, but did not have much of a chance to see what was going on in the CBOE Gold ETF Volatility Index (GVZ – 17.48) until preparing for my weekend blogging duties.  I was honestly very surprised to see that GVZ was still in the teens after GLD broke the uptrend as can be seen in the chart below.  I then checked the action for the full week wondering if the lack of volatility on Friday contributed to a drop in GVZ from higher levels.  Again I was surprised to see the high for the week in GVZ in the low 18’s.  I’m going to take this as the market not being too concerned about a further drop in GLD to new lows or a quick resumption of the previous uptrend.

GLD Chart

 

Oil was higher on the week probably due to continued political uncertainty.  If you saw the cover of Barron’s this morning you would think that Oil had gotten creamed and the feature story is highlighted with a picture of a barrel of oil and the words $75 OIL in red letters.  There is a fundamental argument for lower oil prices in the future based on an increase in supply, but for the meantime oil remains above $100.  OVX under 20 also indicates that the price of oil will not quickly adjust to this lower level.

GVZ OVX

Last Week in VIX Options and ETPs – 3/30/2014

The S&P 500 lost value last week and so did all four of the volatility indexes that CBOE calculates using SPX options as the underlying market.  Granted the SPX finished on a positive note after dipping a few times over the course of the week and maybe the VIX reaction to market activity is that nothing seems to be able to push this stock market lower.  I did find VXST and VIX both closing at the same price as a curious anomaly and since VXST is so new I’m not sure how to read that.

VXST - VIX - VXV - VXMT

On Friday morning there was a neutral to bearish VIX player that sold the VIX Apr 16 Straddle for just over 2.20 which gives them a profit is April settlement falls between 13.80 and 18.20.  Also there was a seller of the VIX Apr 17 Calls for 0.66 which will work out at April expiration if settlement comes in at 17.66 or less.

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