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.



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.


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 –



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.


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.


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.


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.

Options ETPs

Last Week in Emerging Market Volatility – 3/30/2014

Last week the Brazilian market experienced a credit downgraded by Standard & Poor’s.  The result for the equity market was a rally of over 7% in the iShares MSCI Brazil Capped ETF (EWZ – 44.87).  EWZ has been around since the year 2000 so I decided to check if the 7.68% gain for EWZ was some sort of record or one of the top ten weekly moves for the fund.  EWZ has been around for 714 weeks and this past week’s performance was the 43rd best weekly performance on record.  I guess that explains why the CBOE Brazil ETF Volatility Index (VXEWZ – 28.16) only dropped 4.51% despite the rally in the Brazilian markets.

The rest of the emerging markets had solid performance as well with the iShares MSCI Emerging Markets ETF (EEM – 40.74) rising 4%.  The reaction from the option market was a drop in implied volatility as well.  Also, I know this space is supposed to be all about volatility, but I did come across a somewhat bullish EEM trade from Friday that is worth mentioning.  There was a buyer of EEM shares that sold 9,000 of the EEM Apr 41 Calls for 0.67.  I say somewhat bullish since the shares will be called away if they are over 41 in three weeks, however buying the stock and selling the calls indicates that the trader believes the fund at minimum has a floor here.


Last Week in Short-Term Volatility – 3/30/2014

Despite a relatively tame week over week change, the CBOE Short-Term Volatility Index did trade in pretty wide high – low range last week.  The week over week drop of 0.29 doesn’t quite tell the story of last week.  The high for the week was 17.44 which occurred on Monday morning, while the lowest VXST level for the week was the following day when VXST traded down to 13.24.   This five day illustrates just how much VXST was moving around last week.

VXST 5 Day


Looking at the VXST term structure, the ‘bump’ for the April 16th contract caught my eye last week.  It is still there as the April 16th contract is slightly as a premium relative to the other three futures currently listed on VXST.  I did some digging and am still wondering if it is just the beginning of first quarter earnings season around that time that has SPX implied volatility elevated around that date.


Panel Marks VIX Futures – 10 Years and 95 Million Volume

March 27, 2014 – A panel discussion yesterday at CBOE marked the tenth anniversary of the launch of futures on the CBOE Volatility Index® (VIX®).

Four experts surveyed the development and promise of volatility products:

  1. Mike Edleson, Ph.D., CFA,  Chief Risk Officer,  Office of Investments, University of Chicago,
  2. Joanne Hill, Ph.D., Head of Investment Strategy, ProShare Advisors,
  3. Jamie Tyrell, VIX Options Market-maker, Group One Trading, and
  4. Krag “Buzz” Gregory, Ph.D., Managing Director, Goldman Sachs.

An audience of about 120 financial professionals was in attendance, and I received quite a bit of good feedback.

Buzz Gregory delivered a presentation on VIX Futures: The First Ten Years, and noted that –

  • VIX spot is not directly tradable.
  • Access to the VIX market comes from trading listed VIX products. The performance of VIX ETFs, ETNs, and VIX options is dependent on the listed VIX futures market, so understanding the dynamics of VIX futures is crucial for successful trading.
  • VIX futures began trading in March 2004 and have now been tested in both low and high volatility regimes.
  • The relationship between spot VIX and VIX futures levels is highly correlated to the term structure of S&P 500 implied volatility.
  • If the term structure is steeply upward sloping the VIX future will typically be trading above VIX spot.
  • The steeper the term structure, the higher the basis ( Basis = future – spot ).
  • High-basis environments have tended to be profitable for shorts, bad for longs.

Joanne Hill noted that –

  • Adding cash-equivalent exposure is the typical way U.S. equity managers reduce beta and risk;
  • Smaller amounts of VIX Short-Term and Mid-Term Futures can produce similar amounts of reduction in risk as measured by standard deviation;
  • Rolled positions in VIX Mid-Term Futures also resulted in higher returns than using cash or VIX Short-Term Futures for the period studied.

Mike Edleson delivered remarks on long volatility strategies and diversification.

Jamie Tyrell discussed strategies, liquidity and expirations for VIX futures and options.

Pic-2014-03-26-Vol Panel pics


Over the past decade the total trading volume for VIX futures has surpassed 95 million contracts, and the VIX futures average daily volume rose from 4,543 in 2009 to 213,024 in the first two months of 2014.

VIX fut and opt volume

For information on more than 35 volatility-related indexes, please visit and

Last Week in VIX – 3/23/2014

I’ve been spending more time focusing on block trades that come through the VIX option pit at CBOE to get ideas of how large traders are positioning themselves.  A really unusual one hit the market on Thursday.  I’m trying to piece this together from a handful of trades so I may be off just a little, but there was a large buyer of VIX Sep 18 Straddles that sold 3 VIX Sep 25 Calls for each straddle purchased.  The net trade appears to be long the VIX Sep 18 Call at 2.90, long the VIX Sep 18 Put at 3.00, and short 3 VIX Sep 25 Calls at 1.35.  The net cost for this would be 1.85 per spread.  Below is a payoff diagram is this trade is held to September expiration.  My feeling is there may be some trading around this position, but I can’t get in the mind of the trader so we’ll look at the trade this way.



Below 16.65 and above 19.35 the trade makes money and there is no risk if we have a very low VIX at September expiration.  Due to the short position in the VIX Sep 25 Call there is risk to the upside.  Once VIX trades above 27.90 the trade becomes risky and with no protection on the upside, the theoretical loss is unlimited.


VIX finished the week right at 15.00 as fears of an expansion of the conflict in Ukraine subsided.  Janet Yellen scared the market a little mid-week, but that too was short lived.  The pattern of VIX moving up and then returning to lower levels seems to be a recurring one, but like one the instructors at the Options Institute likes to say, a pattern repeats until it doesn’t.  Eventually one of these flare ups in volatility and drops in the equity market may last longer than a few days.


Last Week in Short-Term Volatility – 3/23/2014

Going into Monday VXST was coming off a week where it rose 62%.  Since fear came out of the market this past week and the S&P 500 rallied up over 1% VXST gave a good portion of the previous week’s gains back and dropped almost 30%.  The near dated (front week?) futures contract that expires next Wednesday was down 14% on the week as well.  I do want to point something out that I found interesting from Friday’s closing VXST prices.  Note on the term structure chart below that the blue line is longer than the red line and I circled the last data point in green.  The blue line is Friday’s close and that April 16th contract is brand new having listed on Thursday.  I felt compelled to include it in the diagram since it went out at a premium to the other contracts.  I’m digging around and not sure if there is an anticipated event that may be market moving or not before that date and after the April 8th expiration.  If someone has ideas please feel free to share at or tweet your thoughts and tag me at @russellrhoads.


Last Week in Gold and Oil Volatility – 3/23/2014

As the crisis in Ukraine subsided and the Fed indicating interest rates will eventually go up put pressure on the price of gold for most of the week.  Despite rising about half a percent on Friday the SPDR Gold Shares ETF (GLD – 128.45) lost just about 3.5% on the week.  The fund is still up about 10% for 2014.  Note that despite a big drop in the GLD fund, gold volatility was lower as well.  The CBOE Gold ETF Volatility Index (GVZ – 16.43) was down in sync with the price of gold.  It is not all that uncommon for GVZ to move in the same direction as GLD, but when there is a big move like last week it makes me pause for a moment.  My thinking is that volatility players are not too concerned about last week’s price action signaling the end of the steady up trend for the price of gold that has been in place in 2014.

The United States Oil ETF (USO – 35.84) was up slightly this past week after being under pressure on Monday post the election in Crimea.  As that situation seems to have calmed, at least for the moment, volatility dropped as well.  The CBOE Crude Oil ETF Volatility Index (OVX – 19.46) was down slightly with what could be considered a small drop in geopolitical risk component in the price of oil.



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