Emerging Market Volatility Last Week – 8/10/2014

The emerging market sector was down slightly last week when measured by using the performance of the iShares MSCI Emerging Markets ETF (EEM – 43.71). Despite the small drop in EEM, the implied volatility of EEM options dropped as well. I usually attribute this sort of price action to the US markets and the S&P 500 did manage a gain last week.

VXEEM Price Action


The Brazilian market and associated volatility index behaved just like EEM and VXEEM with the two dropping in sync. There is a little more to the price action in VXEWZ and it is associated with the political situation in Brazil. We are about two months away from national elections in Brazil which occur on October 5th. We may get to see some added price action in VXEWZ as this event approaches.

EWZ Price Action

The VXEEM curve returned to a fairly normal state of contango as the markets all calmed down last week. Looking on the right side of this figure below things are pretty interesting. As mentioned above Brazilian elections are on the horizon and the result occurs between the September and October expiration dates. September futures settle in a value based on October EWZ options and as the election will be just a couple of weeks away when we settle September VXEWZ future it appears from the high level of VXEWZ futures that the markets expect some real uncertainty to be in the market just before the election.


VIX Last Week – 8/3/2014

VIX rose just over 35% last week with the big part of that move coming from Thursday’s price action. However, Friday’s price behavior was pretty interesting as the S&P only finished down 0.29%, but did trade in a high low range of over 1%. For a longer review of what happened on Thursday click on the link that appears between these words and the VIX price chart –

http://www.cboeoptionshub.com/2014/07/31/vix-today-time-may-different/VIX PA


My personal pattern that goes along with how VIX moves to the upside have been short lived over the last couple of years relates to how I put this blog together. On weeks where VIX rises dramatically mid-week and then comes back down very quickly I would add an extra curve to the chart below to highlight the price action  Since VIX held up on Friday and the near dated futures actually played some catch up rising more than the index and narrowing the spread a bit.



Volume is always a big deal around CBOE, especially when it comes to VIX. Friday was a huge day for VIX futures volume with not just one, but two records broken. First, volume during the extended hours session came in at 68,033 contracts, which broker the previous record of 59,505 contracts which was set on July 10, 2014. The other new record that was set on Friday involved total VIX futures volume which came in at 527,803. The previous total VIX futures volume record was set on April 15, 2013 as a total of 449,955 contracts traded on that date.

Oil and Gold Volatility Last Week – 8/3/2014

When I put these numbers together for the weekend there is always something that stands out and makes me double check my figures. This week it was GVZ. For goodness sake, they are panicking, I can feel it, they are panicking out there. I was in the classroom most of Thursday and Friday, but our classroom is above the VIX pit and the yelling I heard was the kind of panicking that Eddie Murphy refers to with respect to pork bellies and traders not being able to afford the GI Joe with the Kung Fu Grip for Christmas. Well, it is my humble opinion that we don’t have a panic without gold, and GVZ says we aren’t there yet.



Oil on the other hand was panicking, but not like we would expect with all the fireworks on the other side of the world. Oil futures broke support at 100.00 and USO followed by losing over 4% on the week. This breakdown in oil pushed OVX up over 16% and very close to 20.00. I’m going to say that’s more like it on the GI Joe panic scale.


The curves also tell different stories – GVZ, again is pretty tame. The OVX Curve, with August at a slight premium and the back months all basically in line with the index has the appearance of more uncertainty.


CBOE Short-Term Volatility Index Last Week – 8/3/2014

VXST spiked higher on Thursday and remained at elevated levels to end the week up just over 60%. At the height of people hitting the panic button on Thursday VXST rose to 19.99. On Friday, when a second leg down in the S&P 500 appeared to be on the horizon, VXST managed to climb into the 20’s for the first time since the Friday before Ukrainian elections back in March of this year.



A lot of what I see this weekend in the volatility space indicates near term there is an expectation that the S&P 500 may try to recover to higher levels, but some longer term concerns. Checking the closing term structure on Friday the near future contract closing at about a 1.50 discount to the index shows near term volatility traders pointing to the S&P 500 at minimum not following through much more from this past week’s price action.


Volatility Indexes and ETPs Last Week – 8/3/2014

After checking in on the four S&P 500 oriented volatility indexes I realized part of what I see is expected and the other part is a little worrisome. VXST was up just over 60% last week. I love how I type that and move on. Any other market has a 60% move and there is a CNBC special about it. VXST finished the week at about a 2 point premium to VIX and this is fairly normal considering the S&P 500 was down 2.69%. What makes me pause is the farther end of the curve where 3 month and 6 month S&P 500 implied volatility is pretty much in line with 30 day IV. It makes me wonder if consistently higher volatility is on the horizon.



The long oriented ETNs were higher, as would be expected. VXX is now about half August and half September futures (actually a little more September). Those markets are at a discount to VIX, so the long oriented ETNs could benefit if VIX just remains in the upper teens.  One other thing I would like to point out on the table below is VVIX topping 100.00.  That use to be the mid range for VVIX, now it is a level that represents the top end.

Indexes ETNs

Before all the hub bub on Thursday I there was a bearish spread trade on VXX that caught my eye. Wednesday morning, shortly after the open, a trader came in and sold 17,500 VXX Aug 29th 30 Calls at 1.32 and bought 17,500 VXX Aug 29th 33 Calls for 0.80. The result was a net credit of 0.52. This trade is a pretty common one as many of us are blindly conditioned to put on short positions on VXX which was trading around 28.30 when this bear call spread was initiated.


Despite negative issues that are constantly bantered about regarding VXX, it does do what it is supposed to do when it is supposed to do it. What I mean by that is when we get an increase in expected market volatility VXX moves higher. In fact from Wednesday’s open to Friday’s close VXX was up by just over 16% finishing the week at 33.01. There is still time for VXX to come back down to the 20’s before the last Friday in August, but things could be much worse for the seller of the VXX Aug 29th 30 Calls if they had not chosen to buy the VXX Aug 29th 33 Calls.

Nasdaq-100 and Russell 2000 Volatility Last Week – 8/3/2014

VXN rose just under 30% last week, admittedly off a low base, but still that is quite a move. This rise in VXN was slightly less than VIX’s one week change of over 35% which may be attributed to a combination of the concerns weighing on the equity market being somewhat global in nature and the Nasdaq-100 dropping a little less than the S&P 500.


The Russell 2000 has been a laggard this year and is now down more than 4% on the year. The CBOE Russell 2000 Volatility Index (RVX) has reflected this lack of performance by consistently trading at a premium relative to VIX. The premium narrowed a bit last week with RVX rising less than 20%.


Before moving on to the curves I would like to note a trade highlighted in this blog space before the market dropped last week. Someone, in a very timely fashion, purchased 2,200 of the RUT Oct 1010 Puts for 9.50. The reason I bring this up in a space discussing volatility is the benefit that trader got from the move up in the implied volatility of RUT options combined with some price appreciation that came from the drop in the Russell 2000. Late Friday the bid price for the RUT Oct 1010 Put was 14.00. This is a great demonstration of why paying attention to equity index implied volatility and understanding how it changes relative to the underlying market is important for traders that may only focus on index options.

The blog about the RUT trade from earlier this week may be found at the following link –


The curves are both basically mirror images of each other. Both the indexes are at slight premiums to the front month future and then a slight amount of contango beyond the August futures. Friday saw a bit of a catch up for the futures as there was not rebound in the stock market after Thursday’s big drop.

VXN RVX Curves

Emerging Market Volatility Last Week – 8/3/2014

Like many equity market volatility indexes VXEEM has been at historically low levels for most of 2014. Eventually this sort of price action must revert to a mean that is higher and often this involves surpassing that average. VXEEM did just that finishing the week up over 25%.



Since some of the problems that took the markets down stemmed from an emerging market that was not Brazil, VXEWZ rose only (only?) 16% last week, much less than the 25% move out of VXEEM from last week. Also, the Brazilian market has held up better than the other emerging markets in 2014, it the EWZ ETF did experience a 4.5% drop last week.


The curves have a bit of a different look to them. VXEEM finished the week higher than the front month future while VXEWZ was at a discount. The discount is probably a function of VXEWZ being at a premium relative to VXEEM and anticipating more risk than VXEEM this year.


VIX Action Today – 7/31/2014

Today was a heck of a day in the equity markets. We got our biggest on day S&P 500 drop in a few months and the first down month for the S&P 500 since January (I bet you forgot the January Effect indicator was bearish for 2014 – I admit I did). The result was a spike in VIX, VXST, and moves higher in all other equity market related volatility indexes. Here are a few of the highlights (or low points depending on you were positioned coming into the day).

The CBOE Volatility Index –

VIX moved up over 27% which was the third biggest move to the upside in 2014. The front month future was up just over 12% and finished the day at a discount of 1.75 points to the spot index. If you throw spot VIX out of the equation, the term structure chart is actually in contango, which could be taken as a bullish signal for the equity market. The market has become conditioned to expect any spike in volatility to be short lived and that is apparent when you look at the blue line below, of course excluding spot VIX. A couple of weeks ago VIX moved up by over 30% in a single day, but was back down below 12 in less than a week. That is the sort of pattern that traders have come to expect and may explain the August discount to spot. Keep in mind we have an employment report tomorrow that probably has some market participants nervous. Looking at the August VIX future price today I would say those that are nervous into tomorrow’s number are in the minority.

VIX Curve 

Unofficially, today’s VIX futures volume came in at 364,811 contracts which would make today the sixth busiest day on record for VIX futures trading. Also, unofficially, it appears that the average daily VIX futures volume for July was just over 196,000 contracts which would make July the fourth busiest month for VIX futures trading based on that metric.

The CBOE Short Term Volatility Index –

VXST was up almost 50% on the day for the ninth biggest single day move since the data was complied. The August 6th VXST future was up over 26%. With only three trading days remaining until expiration the August 6th contract followed VXST higher, but is still at somewhat of a discount. Like with the VIX curve, there seems to be some apprehension as to whether this move down in the stock market is going to continue.

VXST Curve

VXST – VIX – VXV – VXMT Term Structure

Finally, taking a look at expectations going out six months the VXST – VIX – VXV – VXMT curve tells a bit of a longer term bearish story. VXST is at a premium to VIX, but VXV and VXMT (3 month and 6 month volatility measures) both moved up.


What I read from the three term structure charts above is that the market expects another rebound, but is uncertain about the longer-term let’s say six months or so outlook for the direction of stocks. That is in no way a prediction, just how I read the volatility environment as of the close today.

With so much activity going on I decided to visit the VIX pit just after the 3:15 close and ask if there was a balance of bearish and bullish VIX trades or was the sentiment all in one direction. The response was it seemed to be bullish on VIX early, bearish mid-day, and then bullish again to finish the day. The chart below shows the price action from today, and it is interesting that the one minute VIX price action sort of matches up to the more subjective response I received from guys in the VIX pit.

VIX Intraday Fixed

Bullish VIX Trade (bearish on stocks)

Someone is looking for a protracted move higher in volatility and expressed this by purchasing 90,000 VIX Nov 21 – 30 Call Spreads for between 0.75 and 0.80 today. The payoff diagram below shows the payoff at November expiration. However, a trade of this size (over $7,000,000) is most likely part of a hedging program for a much larger portfolio and would be scaled out of or traded around before November expiration.

VIX BC Spread

Bearish VIX Trade (bullish on stocks)

There was a buyer about mid-day of VIX August 12.50 Puts that paid 0.30. Needless to say this trade was a little early as VIX had another leg up in the last couple of hours today.

VIX Put Trade

So that is the day that was volatility trading. As I finish this blog I look down and it is exactly 7:30 pm Chicago time. In 12 hours we will have a fresh employment report from the Labor Department. I for one think tomorrow could be pretty pivotal. It has been a long time since we saw a dip in the stock market that was not followed by a rebound. The market seems to be prepared for that rebound to occur very soon. An employment report that is taken negatively by stocks may just give us the first taste of the stock market not shaking off a bad day in a very long time.

VXST Futures and VIX Index Both Rose More Than 26% Today – By Matt Moran

July 31, 2014 — In a July 26 piece that now looks as if it could be rather prescient, in last weekend’s Barron’s Striking Price Column, Steve Sears wrote –

“BlackRock, the world’s largest asset-management firm, is telling clients that equity-options volatility is now the last cheap asset class in the financial market. With the CBOE Volatility Index (VIX) at about 11.50, around half of its long-term average of 19, BlackRock is telling clients that the measure should be in the mid- to high-teens. This view is consistent with our previous recommendations that investors buy volatility in anticipation of VIX increases in reaction to shifting Federal Reserve monetary policy or continuing geopolitical instability in Ukraine and the Middle East. …”


The chart below shows that the VIX spot Index and VXST futures (expiring on Aug. 6) both moved pretty closely in tandem.

VXST chart for Blog

The table below shows today’s price moves for CBOE’s 26 volatility indexes and the near-term VXST futures. Both the VIX spot index and the VXST August Week 1 futures (that settle on August 6) rose more than 26% today. To learn more about futures and options on several volatility indexes, please visit www.cboe.com/volatility.

Table for July 31 Blog

VIX Last Week – 7/27/2014

VIX rose over 5% last week despite the S&P 500 being basically flat on the week. There could be some of that anticipation we see in VIX (as opposed to reacting to the market) in front of big economic events and this coming week is full of those events. The FOMC rate announcement comes out Wednesday and Friday before the equity market opens we will get the first read on the economy in July when the Labor Department releases the monthly jobs report.



The VIX curve isn’t terribly steep with the August contract only at a 0.81 premium as of Friday’s close. I would have expected a bit more based on the potential for a spike in VIX this coming week.


Based on this coming week I took a peak at Friday’s VIX option activity. The first thing I noticed was it was sort of quiet, but the other thing that stood out a bit were two trades that occurred after lunch. Someone bought 4,000 of the VIX Aug 20 Calls at 0.24 and then a little later there was a buyer of over 7,500 of the VIX Aug 23 Calls for 0.15.


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