Ten New CBOE Benchmark Indexes – Tools for Risk Management and Yield-enhancement

Today CBOE® announced in a press release that it has created 10 new options-based strategy performance benchmark indexes that are designed to highlight the long-term utility of options as risk management and yield- enhancing investment tools. CBOE will disseminate intra-day values for the new benchmarks beginning August 3, 2015 at the page www.cboe.com/benchmarks. The new benchmark indexes use popular S&P 500® Index (SPX) Weeklys options to create new versions of two of CBOE’s flagship strategy benchmark indexes — the CBOE S&P 500 BuyWrite Index (BXM) and the CBOE S&P 500 PutWrite (PUT) Index — as well as completely new risk-managed option selling strategies featuring S&P 500 Index (SPX) and CBOE Volatility Index® (VIX®) options.


Six of the ten new indexes (as well as CBOE’s BXM, PUT and CLL indexes) have data history going back more than 29 years, to June 30, 1986.

While there still are some investors who think that all options strategies are inherently volatile and risky, a very striking fact is shown in Exhibit 1 below – all nine of the options-based benchmark indexes in the Exhibit had less volatility over the 29-year time period than the three “traditional” indexes – the S&P 500®, MSCI EAFE®, and S&P GSCI indexes.

Exhibit 1

1 - St Dev

A description of each index follows:

1. CBOE S&P 500 Multi-Week BuyWrite Index (BXMW)
The CBOE S&P 500 Multi-Week BuyWrite Index is designed to track the performance of a weekly covered call strategy with staggered short positions in call options expiring in consecutive four week options. The BXMW Index is constructed as a combined portfolio of four mini BuyWrite indexes. Expirations are staggered so that the BXMW Index sells four-week options on a rolling weekly basis.
2. CBOE S&P 500 One-Week PutWrite Index (WPUT)
The CBOE S&P 500 One-Week PutWrite Index is designed to track the performance of a strategy that sells an at-the-money (ATM) S&P 500 Index (SPX) put option on a weekly basis. The maturity of the written SPX put option is always one week to expiry. The written SPX put option is fully collateralized by a money market account.

3. CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ)
The CBOE S&P 500 Zero-Cost Put Spread Collar Index is designed to track the performance of a low volatility strategy that 1) holds a long position indexed to the S&P 500 Index; 2) on a monthly basis buys a 2.5% – 5% S&P 500 Index (SPX) put option spread; and 3) sells a monthly out-of-the-money (OTM) SPX call option to fully cover the cost of the put spread.

4. CBOE S&P 500 Iron Condor Index (CNDR)
The CBOE S&P 500 Iron Condor Index is designed to track the performance of a hypothetical option trading strategy that 1) sells a rolling monthly out-of-the-money (OTM) S&P 500 Index (SPX) put option (delta ≈ – 0.15) and a rolling monthly out-of-the-money (OTM) SPX call option (delta ≈ 0.15); 2) buys a rolling monthly OTM SPX put option (delta ≈ – 0.05) and a rolling monthly OTM SPX call option (delta ≈ 0.05) to reduce risk; and 3) holds a fixed income account which is rebalanced on option roll days to limit the downside return of the index.

5. CBOE S&P 500 Iron Butterfly Index (BFLY)
The CBOE S&P 500 Iron Butterfly Index is designed to track the performance of a hypothetical option trading strategy that 1) sells a rolling monthly at-the-money (ATM) S&P 500 Index (SPX) put and call option; 2) buys a rolling monthly 5% out-of-the-money (OTM) SPX put and call option to reduce risk; and 3) holds a fixed income account which is rebalanced on the option roll day to limit the downside return of the index.

6. CBOE VIX Strangle Index (STGV)
The CBOE VIX Strangle Index is designed as a premium capture index. The index overlays short CBOE Volatility Index (VIX) call and put options with a capped long VIX call option position. The position is collateralized by fixing the number of strangles such that 80% of capital is reserved.

7. CBOE S&P 500 Covered Combo Index (CMBO)
The CBOE S&P 500 Covered Combo Index is designed to track the performance of a “short strangle” strategy collateralized by a portfolio holding a long position indexed to the S&P 500 Index and a fixed income account. The CMBO Index sells a monthly at-the-money (ATM) S&P 500 Index (SPX) put option and a monthly 2% out-of-the-money (OTM) SPX call option. The short put position is fully collateralized by the money market account and the 2% OTM SPX call is collateralized by the long SPX Index position.

8. CBOE S&P 500 5% Put Protection Index (PPUT)
The CBOE S&P 500 5% Put Protection Index is designed to track the performance of a strategy that holds a long position indexed to the S&P 500 Index and buys a monthly 5% out-of-the-money (OTM) S&P 500 Index (SPX) put option as a hedge.

9. CBOE S&P 500 30-Delta BuyWrite Index (BXMD)
The CBOE S&P 500 30-Delta BuyWrite Index is designed to track the performance of a yield-enhancement strategy that holds a long position indexed to the S&P 500 Index and sells a monthly out-of-the-money (OTM) S&P 500 Index (SPX) call option. The call option written is the strike nearest to the 30 Delta at 10:00 a.m. CT on the Roll Date. The BXMD Index rolls on a monthly basis, typically every third Friday of the month.

10. CBOE S&P 500 Conditional BuyWrite Index (BXMC)
The CBOE S&P 500 Conditional BuyWrite Index is designed to track the performance of a yield-enhancement strategy that holds a long position indexed to the S&P 500 Index and sells a monthly at-the-money (ATM) S&P 500 Index (SPX) call option. The written number of ATM call options will be either ½ unit or 1 unit and will be determined by the level of the CBOE Volatility Index (VIX Index) when the call option is written on the Roll Date. The BXMC Index rolls on a monthly basis, typically every third Friday of the month.


Exhibits 2 and 3 show that the new CBOE S&P 500 30-Delta BuyWrite Index (BXMD) had higher returns than the three “traditional” indexes – the S&P 500®, MSCI EAFE®, and S&P GSCI indexes.

Exhibit 2

2- Annual Ret
Exhibit 3
3 line chart
Exhibit 4 provides a histogram showing that the CBOE S&P 500 30-Delta BuyWrite Index (BXMD) has had fewer extreme moves (up or down) than the S&P 500 Index.

Exhibit 4

4 Histogram


Manager testimonials and a 2015 study on funds’ use of options can be found at www.cboe.com/funds.

More information about CBOE’s current and new benchmark indexes will be available next week at www.cboe.com/benchmarks.

Panel of Experts in NYC Discusses New VIX Weeklys Futures and Options — By Matt Moran

On July 16 in New York City, a panel of four volatility experts – Mark Chen, Managing Director, Citigroup; Joe Aiken, Managing Partner, Malachite Capital Management; Krag “Buzz” Gregory, Managing Director, Goldman Sachs; and Jim Lubin, Managing Director; CBOE Futures Exchange, LLC (CFE®), had a lively and upbeat discussion on the topic of Managing Portfolios with VIX® Weeklys Futures and Options.

0-Pics of 3 ExpertsCFE plans to list futures with weekly expirations on the CBOE Volatility Index® (VIX) beginning at 3:30 P.M. CT on Wednesday July 22 (this is the beginning of the July 23 trading day), subject to regulatory review. VIX Weeklys options at CBOE are expected to follow on a later date, also subject to regulatory approval. www.cboe.com/VIXWeeklys.

At the panel discussion, strong interest was expressed in being able to trade volatility products with more expirations around-the-clock, and much of the discussion focused on recent Sunday night VIX trading in reaction to weekend events in Greece.

Key points about the new VIX Weeklys futures and options include –

• The new VIX Weeklys futures and options will offer more expirations that have the potential to provide more precision and responsiveness for investors. There will be more expirations for VIX futures and options, with the expected convergence of VIX futures to the cash settlement price available four to five times a month instead of once a month.
• The addition of weekly expirations to standard monthly futures and options expirations offers volatility exposures that more precisely track the performance of the VIX Index.
• By ‘filling the gaps’ between monthly expirations, investors may obtain new opportunities to establish short-term VIX positions, and fine-tune the timing of their hedging and trading activities.
• The closer VIX futures and options are to expiration, the more closely they generally track the VIX Index.
• VIX Weeklys provide a natural extension of the VIX offering with a standard VIX term structure. VIX Weeklys offer investors additional short-dated volatility plays while leveraging an already liquid product.
• The beta, or measure of how closely the contract tracks the underlying, increases as it approaches expiration. That also means the Weeklys could be more reactive to the release of economic reports and other market-moving events. By adding more expirations, CBOE is giving investors additional opportunities to trade VIX futures with a high beta to the VIX Index.
• The new VIX Weeklys will be quoted in the same VIX chain on quote screens offered by Bloomberg and other quote vendors.

Below is a sampling of some of the many charts discussed during the panel.

After news broke on the weekend of June 27 that the banks in Greece would be closed, trading volume for VIX futures in the Extended Trading Hours session (5:00 p.m. (Sunday) to 8:30 a.m. (Monday)) spiked to 60,144 contracts. The panel noted that many volatility traders followed the VIX futures the night of Sunday, June 28.

1-VIX Futures ETH

As shown in the table below, on the morning of June 29 the VIX Index rose 2.45 points and the July VIX futures were up 0.95.

2-VIX futures on June 29

It is expected that this week there VIX Weeklys futures with expirations on Aug. 5 and Aug. 12 will be listed, and then later the VIX Weeklys futures with Aug. 26 expiration will be listed.

3- Expira Dates and Tickers

In an analysis of more than 2,700 dates, VIX futures had a beta of 0.79 with one day to the VIX standard expiration, while the VIX futures had a beta of 0.39 with 33 days to standard expiration.

4- Beta

Several attendees and panelists noted that the strong growth in volume for S&P 500 Weeklys options could be a very good sign for the potential for growth of the VIX Weeklys futures and options.

5-SPX Weeklys adv

For more information regarding the new VIX Weeklys, please visit www.cboe.com/VIXWeeklys.

Last Week in TYVIX – 7/19/2015 by Catherine Shalen

TYVIX in the Aftermath of the October 15, 2014 Flash Crash

On Monday, July 13, staff members from the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission released a joint report on the exceptional Treasury volatility that occurred on October 15, 2014.

The behavior of the TYVIX Index since October 2015 provides a new angle to the story. Putting together the conclusions of the report and the views from the Street, the story is that banks’ paring of inventories of Treasury securities and high frequency trading may have accelerated the pressure from hedge funds that were unwinding short positions in Treasury futures and options. Predictably, on October 15, 2014, as the spot Treasury market was mired in what traders called a “gamma trap” from 9:30 a.m. to 9:45 a.m., the TYVIX Index surged. What is less predictable is the aftermath. First, the flash crash propelled the TYVIX to a higher range. Second, the pattern of variations of the TYVIX changed. As illustrated in Figure 1, the length and amplitude of TYVIX Index fluctuations increased compared with the preceding period. Whatever its roots, the jolt on October 15, 2014 energized TYVIX.

Figure 1: TYVIX On, Before and After October 15, 2014

CS - Fig 1

Last week’s storm is over. Greece got a reprieve, additional U.S. mixed economic data were released, and Fed Chair Janet Yellen confirmed that the Federal Reserve’s target rate for fed funds will gradually increase this year. This seemed to reassure equity, bond and FX markets: the TYVIX decreased by 15%, EUVIX decreased by 12%, BPVIX by 3% and JYVIX by 9%. The 10-year Treasury note yield also declined.

Figure 2: Current Week in Volatility

CS Fig 2 FIxed


In spite of this week’s volatility decline, the TYVIX Index still is above its values set in April 2014, when the index started to turn upwards. Interestingly, TYVIX has since underestimated the realized volatility of 10-year Treasury note futures. See Figure 3.

Figure 3: Expected Less Realized Treasury Volatility

CS Fig 3

Prices of TYVIX futures followed the same course as the TYVIX Index and fell throughout the week. As of the open on Friday, July 17, 2015, October 2015 TYVIX futures predicted average Treasury volatility of 5.80 in November 2015.

Figure 4: TYVIX and TYVIX Futures Pricing

CS Fig 4

Last Week in VIX – 7/19/2015

VIX closed at 11.95 which is the low for 2015 on Friday and below 12.00 for the first time this year. The week over week drop for VIX was 29% which is the third biggest one week drop in the history of VIX. The curve shifted accordingly, but do note with only two trading days to go the July futures finished the week just about a point higher than spot VIX.

VIX Curves

I’m away from CBOE this week, but never away from the markets. I did note via my twitter feed the history of the market the day after VIX moved under 12.00 intraday in 2015. It is not much of a history as Thursday was the third time this happened which was of course followed by Friday’s action. Here’s a brief review of what I tweeted out with an update for the Thursday and Friday price action.

  • May 22nd – VIX low was under 12 for the first time in 2015 – next trading day SPX was down 21.88
  • June 23rd – VIX low was under 12 for the second time in 2015 – next trading day SPX was down 15.61
  • July 16th – VIX low was under 12 for the third time in 2015 – next trading day SPX was up 2.35

So Friday broke the mini-streak of the S&P 500 dropping the day after the handle for VIX hit 11 on the day.

Next week the CBOE Futures Exchange will introduce futures contracts expiring every week. Options will follow in the next few weeks pending regulatory approval. I have been paying particular attention to trades executed in VIX options when expiration is just a few days off ever since the announcement that VIX Weeklys were on the way. On Friday, VIX was hovering around 12 (12.04) to be specific, and a pretty unique trade came into the VIX pit. There was a buyer of the 863 VIX Jul 12.50 puts at 0.25 who also sold 863 VIX Jul 12.50 Calls for 0.75. In addition they sold 3750 VIX Jul 13.00 Calls at 0.54 and purchased 3750 VIX Jul 14.00 Calls at 0.30. The net result of these trades was a credit (before commissions) of $133,150. I divided up the trades in the table below.

VIX Trades

The payoff diagram below is a slight deviation from the norm. Since the size for the 12.50 strike options is different than the 13.00 and 14.00 call positions I decided to display the payout in terms of dollars. The ultimate goal for this trade, if held to expiration, is that July VIX settlement comes in a low as possible. Anywhere below 13.20 results in a profit which, if the stock market holds up next week, looks likely with VIX closing Friday at 11.95.


Last Week in Volatility Indexes and ETPs – 7/19/2015

Last week VIX did what I guess it is supposed to do and moved to very low levels to reflect that we are in the summer doldrums.   VIX dropped in a way it usually rallies and was down 29% last week for the third biggest one week drop since 1990. VXST was down over 43% as the curve went quickly from slight backwardation to contango.


The long ETP’s got slapped around a bit with VXX losing 17% and the leveraged funds giving up about 33%. The inverse funds moved higher, but only by about 20% as that nasty daily performance resulted in a smaller gain than loss for the long funds.

VXX Table

On Thursday, VIX dropped below 12 for the third time this year. The last two times this happened the S&P 500 was down tremendously the next day. Now that Friday is behind us we know that the streak of big drops after VIX has an 11 handle on the day ended at 2 (is 2 actually a streak?). I did go searching for a trade using VIX ETPs that was hoping for a rally, which would be expected if the S&P 500 dropped quickly. Instead I came across a trade using UVXY options that had only one day remaining to expiration and worked if the fund dropped a little or gained a lot. With UVXY at 28.37 there was a buyer of the UVXY Jul 17th 29.50 Puts at 1.61 who also purchased the UVXY Jul 17th 34.50 Calls at 0.06 for a net cost of 1.67.


This trader needed UVXY to drop 1.7% from where the fund was when they put on the trade or rally 29.6% just to break even. They also only had one day for this price action to occur in UVXY.   We know the S&P 500 was relatively quiet on Friday and the result was UVXY finishing the day at 27.52 which placed the 29.50 Puts solidly 1.98 in the money.

Last Week in TYVIX by Catherine Shalen

Every day Brings a New Twist to TYVIX, Benchmark for Treasury Volatility

The referendum in Greece on Sunday was a non-event for Treasury volatility. TYVIX opened at 6.70 on Monday, 1.82% above its closing value on July 2nd, but by 10:30, TYVIX was back to 6.58. Equity and FX volatilities were more reactive. VIX opened 11.08% higher, EUVIX 6.71% higher, JYVIX 5.74% higher and BPVIX 3.32% higher.

After this open, Treasury prices began a rally which lasted until Thursday, as investors responded to mixed employment signals and the cautious tone of the FOMC’s minutes. On Thursday, Fed fund futures implied a higher probability that the Fed Fund target rate would only be uncorked in January 2016. The pressure to sell Treasuries seemed off. In addition, uncertainty about the European Union was driving investors to safe Treasuries. The demand from buy and hold investors at Wednesday’s auction for 10 year Treasury notes was strong, and Lipper reported a net inflow of $3.130 into taxable bond funds for the week ending on July 8th.

Then on Friday morning, Greece’s new budget plan was out and Janet Yellen stated that the economy was ready for a rate increase this year. This broke the rally with the 10 year Treasury yields popping back to 2.39, about even with last Thursday. After the speech, TYVIX was down to 6.61 even with Monday’s close.


Figure 2 shows that the frequent twists and turns of Treasury futures since April 2015 have pushed TYVIX to a new higher level.

   Figure 2: Ten-Year Treasury Futures


VXTY futures that expire from July 2015 to October 2015 are still in a tight contango pattern. With so much uncertainty, the futures have been meandering gently upward over the last two months, much as TYVIX has.

   Figure 3: TYVIX Futures


Last Week in VIX – July 6 – July 10

Nothing on the week over week curve chart shows what really happened last week in the markets. VIX finished the week in line with the previous week’s closing price as did the S&P 500.   However, at one point during the week VIX was just over the psychologically significant 20 level or up 19.4% and the S&P 500 was down about 1.5% from the close on July 2nd. It is worth noting that the shape of the curve below remains pretty steep as we look to the always interesting fourth quarter.

VIX Curve

One trader stepped up and faded the VIX move from Wednesday using a bear call spread. With VIX at 19.30 and the July futures in the 18’s there was a seller of the VIX Jul 19 / 25 Call spread for 1.04. Specifically they sold the VIX Jul 19 Call at 1.73 and purchased the VIX Jul 25 Calls for 0.69. As always a payoff at expiration is displayed below.

VIX 19 - 25 CS Payout

The expectation would be that July VIX settlement will come in somewhere under 19.00 and both legs of this trade will expire with no value. More bad news from around the world could result in a lower stock prices and a spike in volatility. This is a worst case scenario for this trade and the result could be as bad as a loss of 4.96 per spread. Finally, I took a quick look at this spread and where it was priced on the close Friday. So far things look good as the VIX Jul 19 Call was offered at 1.00 and the VIX Jul 25 Call was bid at 0.35 which means if the trade were exited on the close Friday the realized profit would stand at 0.39 a spread.

Last Week in Volatility Indexes and ETPs – July 6 – July 10

From the pre-Independence day July 2nd close to this past Friday VXST was down 0.73, VIX was up by 0.04, VXV was 0.05 higher and VXMT finished 0.28 higher. VXST is sort of an anomaly as there is a 3-day weekend impact that pushes the index lower. As the week over week change does no justice in showing the actual price action from last week I included the Thursday closing curve to show that last week was anything but boring.


Note on the table below both VXX (and the similar funds) and SVXY (plus XIV) were lower last week. The long funds will follow the performance of their respective strategy indexes while the short funds track a daily performance. The result can be that both long and short funds drop when we have a very volatile week in the equity markets like last week. As soon as my intern returns from her vacation she’s going to get to work on how often both the long and short funds lose value in the same week and what happens afterward.

VXX Table Part 3

On Monday VXX was gravitating around 21.00 when I came across a trade that had a bearish outlook. A relatively small trader sold the VXX Jul 10th 21 Calls at 0.60 and purchased the VXX Jul 10th 22 Calls for 0.24 for a net credit of 0.36.   As long as VXX finished the week below 21.00 this trade pays off 0.36 or the credit received for putting it on. In lieu of a payoff diagram I have included a price chart for VXX with the 21.00 price level highlighted.

VXX Price Chart

Every day last week VXX managed to trade above 21.00 at some point during the day, including Friday for a brief moment. However, as the stock market rallied on Friday VXX faltered finishing the week well below the critical 21.00 level at 19.85.

OTM Bear Call Spread from Monday’s VIX Rally

Fear was heightened on Monday and Greece and then China was making news.  VIX was high there and there was a trade that came into the VIX pit taking advantage of the move.  As the day came to a close, VIX was at 19.66 and the July Futures were more than a point lower. Someone saw that they could sell VIX Jul 32.50 Calls for 0.25 and purchase VIX Jul 35.00 Calls for 0.15 taking in a credit of 0.10.


July VIX expiration is the 22nd so as long as VIX does not go up about 65% and the July futures follow the index to the upside this trade will be OK. If we do get a volatility spike to 35 or higher this trade ends up with a loss 2.40 a spread.

Reviewing a VIX Option Trade into Expiration

CBOE and the CBOE Futures exchange plan on launching VIX Weeklys options and futures respectively over the next couple of months. Usually when new markets start trading we have to do a little wait and see with respect to strategies that large traders are implementing. However, with VIX Weeklys we have over 100 expirations since VIX options were launched and we can look to trading in VIX options and futures that have occurred near expiration.

With this in mind I did some digging around on the Monday June 15th to find an interesting trade to write about. I chose that day because VIX was up 11.6% on the day closing at 15.39 and the June VIX Futures contract was up 9.5% to finish the day at 15.50. I also picked this day because the June VIX futures and options settled on the open on Wednesday June 17th.  That means any trade initiated on this Monday only had one trading day and overnight remaining until settlement.

What I came across was a bit of a head scratcher. Peter Lusk and I spent a little time debating what was going on here and we reached a consensus which I will now share. First, with seconds left in the trading day, VIX at 15.39 and the June VIX Futures at 15.50 there was a 2 x 2 x 3 spread that was executed in a handful of block trades. The trader sold 2 VIX Jun 15 Puts for 0.30 each and also sold 2 VIX Jun 16 Calls at 0.50 each. The trade was then completed as the trader purchased 3 of the VIX Jun 18 Call at 0.20 each. The net result for a 2 x 2 x 3 spread was a credit of 1.00 and a payoff at expiration that is highlighted.

VIX Short Term Chart

The two most important levels for this trade seem to be 14.50 on the downside and 16.50 on the upside. As long as June VIX settlement falls between these two levels the trade would result in some sort of profit. The best case results would be if June VIX settlement came in between 15.00 and 16.00 (spoiler alert – it didn’t). Another potential positive would involve a big one day rally in VIX which would most likely have been in response to a dramatic sell off in the equity markets (spoiler two – that didn’t happen either). The price action for the day leading up to the trade and the last trading day for June VIX options is below.

VIX Chart Fixed

This is a two day chart showing the price action on Monday the 15th and Tuesday the 16th. The price levels for VIX and June VIX at the time of the trade is highlighted. Note that this trade was not without some stress as VIX and the June VIX Future spent most of the following day grinding lower.  Tuesday VIX finished the day at 14.81 and the last trade for the June VIX future was 14.90, both prices were above the downside break-even point, but below the put strike of 15.00. However, if held to settlement, this trade still was not completed.

VIX options and futures are AM settled so any open positions do have some overnight risk. In the case of June settlement, final settlement was a tad lower at 14.67, once again above the break-even level, but not high enough for all options in the spread ending up out of the money.


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