Last Week in Volatility Indexes and ETPs – 3/16 – 3/20

I’m repeating the alteration I did last week to the term structure chart below. Instead of a week over week comparison I show the closing levels for VXST, VIX, VXV, and VXMT relative to the average levels in 2014. Note that near term volatility has thrown in the towel, but concern about a potential downturn for the equity market persists in the three and six month time frames. VIX Curves

Longer dated volatility is still elevated, despite dropping last week in sync with VXST and VIX. A 2.66% rally in the S&P 500 will do that to any equity market volatility index. What also took it on the chin were the long oriented volatility exchange traded funds. VXX and the unleveraged funds lost over 8% and the two leveraged long funds, UVXY and TVIX, both gave up over 16%. This leads me to a massive trade I came across from Friday which is discussed just below the following table.

VIX Table

On Friday one big trader put on a position that expects to profit from the negative roll yield that impacts the performance of one of the leveraged long ETPs.   There was a buyer of over 100,000 UVXY Jan 2017 9 Puts who paid 5.10. The exact amount of the block trade came to $53,785,620, but it appears they purchased over 120,000 over the course of the day which puts the number closer to $61 million.  Either way, it’s a big trade…

In order for this trade to work out UVXY needs to be under 3.90 come January 2017 expiration. That’s a move lower of about 75% from Friday’s close which is highlighted on the payoff diagram below. 75% may sound like a stretch, but this is not out of the realm of possibility as UVXY lost just over 62% in 2014.

UVXY PO Diagram

33 Speakers at RMC Cover Skew, Vol of Vol, Options-Based Funds, etc.

At the 31st Annual CBOE Risk Management Conference (RMC) on March 4 – 6, 2015 in California, thirty-three expert speakers (see list below) spoke on a variety of subjects, including skew, volatility of volatility, and a new 2015 study with the first-ever list of publicly available list 119 Options-Based Funds.

Speakers noted that Extended Trading Hours – beginning at 2 am Chicago time – commenced on March 2 for VIX options, and commence on Monday, March 9 for SPX options.


Below are 14 charts on some of the topics covered by the speakers.

Speakers noted that the CBOE VIX of VIX Index (VVIX) has risen in recent months.

Ch-2015-03-05-1415-VVIX  VIXCh-2015-03-06-1100-Table VIX Index & VIX futuresCh-2015-03-06-1100-VIX Index & VIX futures

VIX has been in contango for most days in each year since 2008. VIX was in backwardation about 111 days in 2008, 2 days in 2012 and 33 days in 2014.

In 2014 the average daily close for the CBOE Volatility Index (VIX) was 14.2 for the second year in a row, and the CBOE SKEW Index had its highest-ever average daily closing value of 129.8.

Ch-2015-03-06-0800-SKEW IndexCBOE now offers futures on the CBOE/CBOT Treasury Note Volatility Index (VXTYN), and I believe interest in and concerns about interest rate volatility could heat up in the next year or two.

Ch-2015-03-05-1545-VXTYN & Int Rtaes since 2003

Keith Black presented a groundbreaking new study — “Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs” authored by Keith Black and Edward Szado — that analyzed SEC-regulated investment companies that focus on use of exchange-listed options for portfolio management (options-based funds).

Ch-2015-03-05-1400-Options-based Funds Number Growth




008-AnnualizedRet-BXYCh-2015-03-05-1400-RisK Return BXM BXYGROWTH IN VOLUME

SPX options, VIX futures and VIX options all had record volume years in 2014, and many speakers discussed volume and liquidity trends. Keith Black noted that the notional value of the average daily volume for SPX options was around $172 billion in 2014.

Ch-2015-03-04-1530-SPX options volume

VIX futures a d v


1 Arie Aboulafia Senior Portfolio Manager, Capstone Investment Advisors, LLC
2 Brandon Bates Portfolio Manager, BlackRock
3 Keith Black, Ph.D., CAIA, CFA Managing Director, Curriculum and Exams, Chartered Alternative Investment Analyst (CAIA) Association
4 Benjamin Bowler Co-Head of Global Equity Derivatives Research, BofA Merrill Lynch
5 David Burchmore Portfolio Manager, Ontario Teachers’ Pension Plan
6 Vijoy Paul Chattergy Chief Investment Officer, Employees’ Retirement System of the State of Hawai’i (HIERS)
7 Andrew Claeys, CFA Director of Trading, Analytic Investors
8 Dean Curnutt Chief Executive Officer, Macro Risk Advisors
9 Bruno Dupire Head of Quantitative Research, Bloomberg
10 Mike Edleson Chief Risk Officer, The University of Chicago
11 Benn Eifert, Ph.D. Portfolio Manager, Mariner Investment Group
12 Rocky Fishman CFA, Equity Derivatives Strategy, Deutsche Bank Securities Inc.
13 David Goerz Former EVP – Head of Investment Strategy & Risk Management, Alberta Investment Management Corp.
14 Jason Goldberg Portfolio Manager, PIMCO
15 Krag “Buzz” Gregory Equity Derivatives Strategist, Goldman Sachs
16 Søren Grooss Portfolio Manager, PKA
17 Samuel Kadziela Director of Education, Chicago Trading Company, LLC
18 Zachary Karabell President, River Twice Research
19 Kambiz Kazemi Portfolio Manager, Picton Mahoney Asset Management
20 Marko Kolanovic Global Head of Quantitative and Derivatives Strategy, J.P. Morgan
21 Ken Kwalik Portfolio Manager, Investment Management Division, Goldman Sachs
22 Boris Lerner Head of US Quantitative and Derivatives Strategy, Morgan Stanley
23 Berlinda Liu Director of Index Research and Design, S&P Dow Jones Indices
24 Defina Maluki Portfolio Manager, Barclays Wealth and Investment Management
25 Andy Nybo Principal, Head of Derivatives, TABB Group
26 Yoshiki Obayashi Managing Director, Applied Academics, LLC
27 Donald Pierce, CFA Chief Investment Officer, San Bernardino County Employees’ Retirement Association
28 Edward L. Provost President & Chief Operating Officer, CBOE Holdings, Inc.
29 Amna Qaiser Portfolio Manager, Goldman Sachs Asset Management
30 Olivier Sarfati Head of US Trading Strategies, Citigroup
31 William Speth Vice President, Research and Product Development, CBOE
32 Basil Williams Co-Chief Investment Officer, Mariner Investment Group
33 Mahsa Zeinali Chief Operating Officer, Rosen Capital Advisors

In addition, Edward Szado Assistant Professor of Finance, Providence College, was scheduled to deliver a presentation on a 2015 paper on Options-based Funds, but his arrival was delayed by the snowy weather in New England.


Here are links to webpages with more information –

  • More than 30 volatility indexes
  • CBOE SKEW Index
  • Term Structure updates
  • White Papers on index options
  • CBOE Risk Management Conference (upcoming conferences are planned for Switzerland in September and Hong Kong in December)

VIX Last Week – 2/23 – 2/27

The S&P 500 hardly budged on a week over week basis and VIX drifted lower. The March future drifted lower basically in sync with the index, but is still at a health premium relative to the index. I’m attributing that to the pending employment numbers coming out next week. I need to do a study and see what happens with that spread on the weeks that we get the employment report. I wouldn’t be surprised to see the gap narrow post-employment as there is often no pending market moving event until after expiration.

VIX Futures Curve

On the trading front there were two trades that appear to expect VIX and the March contract to drift or stay lower. Early in the day a trader came in and sold 4000 VIX Mar 18 Calls at .76 and bought the same number of VIX Mar 21 Calls at 0.44 for a net credit of 0.32. Late in the day there was a buyer of a put spread who purchased 3000 VIX Mar 14.50 Puts at 0.43 while selling 3000 VIX Mar 13.50 Puts at 0.12 for a net credit of 0.31. The maximum reward for both trades is almost equal but the risk profit is very different. This shows up in the payoff diagram below –


Note that for the call spread the maximum potential loss is 2.69 if VIX is over 21.00 at expiration or a potential profit of 0.31 versus a loss of 2.69. Of course a lot needs to go wrong for the result to be a maximum loss. The risk for the put spread is only 0.68, but this trade result would occur if VIX is over 14.50, which is where it has been for most of 2015.

Volatility Indexes and ETPs Last Week – 2/23 – 2/27

Last week was fairly quiet despite the second revision of GDP coming in a little light. We may see a little more volatility action in the coming week as on Wednesday the ADP Employment Change report is released Wednesday before the open and then the government version of the employment report coming on Friday. Both of these reports are significant as they are a first look at economic activity for February.

Despite the S&P 500 losing a little value last week, with Friday to blame, the VXST – VIX – VXV – VXMT curve actually did shift lower. VXST broke 11 for the first time since Christmas Eve of last year. I find this a bit surprising due to the pending employment reports mentioned above.

VIX Curve

As volatility settles in the low teens the long VIX strategy funds continue to struggle. VXX lost almost 5% for the week and is down over 12% year to date. Being short volatility is now working after struggling to start the year with both XIV and SVXY up about 5% for the year.

ETP Table I noted a few weeks ago a VXX buy-write on a Friday afternoon. I saw another one come in late Friday this week. There was a buyer of VXX at 27.60 who also sold the VXX Mar 6th 28 Calls for 0.60. I never like to refer to a covered call as a hedge, but that may just be part of the motivation for this trade.  The payoff diagram below shows the break-even point in percentage terms which I’ll touch on below.


Selling the call option results in a 2% cushion against a downside move in VXX and giving up a big part of the upside. Of course VXX can lose much more in a week (last week it was down about 5%). However, it may be that the holder of this position would roll their option down at particular price points.  Conversely if VXX moves higher they may consider rolling up or just holding through expiration and having the shares called away for a profit of 1.00. I’m going to keep an eye on VXX and the Mar 6th Calls to see if I can get a read on any managing trades around this buy-write.

Extended Hours for VIX Option Trading Begins 3/2

The question we have heard over the last several years was “CBOE VIX Futures have extended trading, when will VIX Options have Extended Trading Hours”?

On Monday, March 2nd,  Extended Trading Hours (ETH) for VIX options will launch.  Trading hours will be from 2:00 a.m. to 8:15 a.m. Central Time (“CT”).  Regular VIX trading will resume at 8:30 a.m. and continue until 3:15 p.m. CT.

Since June 2014, the trading hours for futures on the CBOE Volatility Index® (VIX®) have been expanded to nearly 24 hours a day, five days a week. Average Daily Volume (ADV) in VIX Futures has been great with a surprising amount of that in extended hours.

With Average Daily Volume with CBOE VIX options being two to three times VIX futures volume, extending trading hours to reach more traders and investors makes great sense.

Trading desks in Europe have expressed enthusiasm for the availability of VIX options during their regular trading sessions (I’ve heard from several Asian traders who look at VIX Options as a tool to adjust portfolio risk at the end of their trading sessions).  As opposed to VIX Futures, remember that VIX Options  will only include an extended morning session, 2:00a.m. to 8:15 a.m. Central Time.

For more information about Extended Trading Hours in VIX, go to .   CBOE Regulatory Circular RG 15-014 is available at that site.

ONE LAST COMMENT:  Extended Trading Hours in SPX Options are expected to commence the following Monday, March 9th.

Last Week in VIX – 2/22/2015

VIX was down some last week and the newly christened front month March future followed the index lower and then some. Despite the drop, the March future finished Friday at a pretty steep premium relative to the index which shows that despite the S&P 500 making new highs, the volatility market isn’t convinced 2015 will be a repeat of the past couple of years in the equity space.

VIX Curve

I pulled out a couple of charts from my 2014 year end volatility review and updated them with 2015 data through Friday. A couple of things of note. First, the low for 2015 is slightly higher than the average for 2014.   We had two new record high closes in the S&P 500 last week and VIX is higher than average in a year where 1 out of 5 days experienced a record S&P 500 close.

VIX High Low Close

That takes me to the other updated chart. This one was a favorite of mine toward the end of 2014 and with the three record setting days in 2015 it looks even more dramatic. From the beginning of 2014 the S&P 500 has closed at a record high 56 times. I highlight the VIX closing prices on each of those days on the chart below along with the average close for VIX on those days.

VIX on Records

My job in this space is to say what’s going on in the volatility space, all I can say is just about everywhere I look it appears the volatility markets are not buying into the S&P 500 moving higher as it did over the last couple of years. Time will tell whether they are right or wrong.

Last Week in the Volatility Markets – 2/22/2015

Usually it is pretty easy for me to come up with something new to say regarding what went on the volatility markets last week. However, it has been a lot of the same for a pretty long time now. We have now experienced three all-time highs for the S&P 500 in 2015, which is three more than some forecasters thought we’d see, and VIX is working down to levels we were accustomed to over the past couple of years.

Friday’s VIX close of 14.30 is just a tad higher than the average VIX close in 2014. On the shorter end of things VXST was down very little on the week, but last Friday’s close was in front of a three day weekend which always puts a little pressure on VXST. The average for VXST in 2014 was 13.69, so this 11.74 reading shows a lot of complacency over the near term for the equity markets. I quickly consulted the economic calendar and next week is pretty light on the new news which easily explains the low VXST. For comparison sake I decided to add the 2014 averages to the volatility term structure chart below.


In the ETP space SVXY and XIV benefitted from the two record setting S&P 500 days last week and managed to crawl out of the hole to positive for 2015. The long funds all took a dive and dug their respective 2015 performance holes a little deeper.


In the table above VVIX dropped 7.5% on the week to finish in the mid-80’s. VVIX is a volatility index based on VIX option pricing. The high – low range by year plus the average for each year going back to 2007 is highlighted below. Like the volatility indexes in the first chart, there appears to continue to be elevated risk perceptions in the VIX market despite the S&P 500 hitting new records.

VVIX by Year

Last Week in VIX – 2/8/2015

With a 17% drop in VIX, the week ended not just in contango, but pretty steep contango. Especially when looking at February versus the spot. Also taking into account there is a week and a half remaining until February settlement. February at almost a 2 point premium to VIX in a pretty good indication that traders are still worried about the health of the overall stock market and the possibility that February settlement comes in higher than current levels.

VIX Curve

I’m going to deviate a little and discuss Nasdaq-100 and Russell 2000 volatility. Although I have scaled back on the markets I cover each weekend, I do still update the week over week graphics. It was interesting to note that the April VXN future was actually up slightly last week despite VXN dropping almost 15%. I also noticed that on the RVX curve April is a little elevated relative to the May contract. One twitter response regarding graphic below has to do with the timing of an FOMC meeting (between March and April expirations). My first guess, at least in the case or VXN, was first quarter earnings. Feel free to tweet any thoughts to me at @RussellRhoads


Finally, I was interested to see a block trade go off on Friday that had me pondering the mind of the person behind this execution. In big size there was a seller of 2 VIX Mar 27 Calls at 1.00 who simultaneously purchased 3 VIX Jun 30 Calls for 1.48. I was traveling on Friday so I wasn’t able to head down to the VIX pit and ask if anyone had ideas about the motivation of this diagonal ratio spread. Here’s my guess – first they want VIX to remain under 27 through March settlement. After that, they may consider selling April or May calls against the remaining long position and then even sell June calls against this long position to continue to benefit from time decay. When I return to CBOE on Monday I may have more info, for now I welcome any ideas as to what was going on with this trade.

Last Week in Volatility Markets – 2/8/2015

A big up week for the S&P 500 resulted in the VXST – VIX – VXV – VXMT term structure curve returning to contango after going into backwardation to end the previous week. This sort of action is wearing thin for guys on the floor. I was even pulled aside and told that there seems to be a sort of ‘seller’s exhaustion’ when the market moves dramatically in one direction or another.   I’ll speak to that topic more after discussing the ETPs.


There was a reversal with VXX getting hit and the short funds benefitting from the drop in volatility.  Also the short funds got the benefit of a return to contango for the VIX futures. The performance was basically a gain of 7% for XIV and SVXY and a drop of about 7% for VXX, VIXY and VIIX. I do want to highlight the year to date numbers. The short funds are now down over 14% while the long funds are up almost 9%. That daily compounding that causes disconnects between the performance and inverse performance is more evident when VIX is whipping around as it has been for most of 2015.

Index - ETNs

Evidence of the lack of option sellers shows up in VIX as it has been pretty elevated for 2015. Another are that it is really showing up is in the volatility of VIX options as measured by VVIX. The chart below shows VVIX for all of 2014 and what there is in 2015.

VVIX Chart

For the longest time VVIX oscillated between 80 and 120 with an average of about 100. The average for 2013 and 2014 was much closer to 80.   So far in 2015 the average has been 105. As long as option sellers remain skittish or on the sidelines when we get big market moves higher or lower the moves will probably continue to be pretty dramatic like they have been so far this year.

Checking In on Oil Volatility

Oil was the headline grabbing market for the last few months of 2014. For months the price of oil has continued to violate any sort of support levels that technical analysts can come up with. January’s average OVX close was just over 55. This was the highest average for a month since the tail end of the Great Financial Crisis in April 2009. The chart below shows the average daily close by month for OVX since mid-2007 through January 2015.

OVX Avg Daily Close

The thing is, Oil has sort of vanished from the headlines. The price has sort of staggered in the mid to upper 40’s.   Despite being in a sort of a range the CBOE Oil ETF Volatility Index has remained at high levels. This second chart overlays OVX and crude oil futures prices from September 1st of last year through the end of January 2015. The trend to the downside appears to be slowing some.


So why is OVX still trading near recent highs even though some market participants think oil is reaching a bottom and others are not paying attention anymore. I did some digging and may have an answer. I took a look at where OVX closed on the last day of each month proceeding September through January. Then I calculated the annualized realized volatility for CL futures. The results appear in the table below –

CL vs OVX Table

Four of the five last months, OVX was lower that the realized volatility for that month. October’s numbers were basically in line with each other. OVX is nothing more than implied volatility which is the market’s prediction of what realized volatility will be in the future. In the case of OVX this is a 30 day forecast or one month and this forecast has been low more often than not recently. This may be price into the market until we have a month or two where realized volatility comes in lower than market expectations.


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