Weekend Review – VIX Futures and Options – 10/1/2017

VIX remains at low levels and the curve continues to be steep as the volatility markets appear to be braced for ‘something’.  That something is probably an unknown unknown that will shock some very complacent markets.

VIX Curves 09292017

An interesting VIX trade caught my eye on Friday as it were a little different than most of the trades I’ve come across.  First the trade details and then a little color about that trade.  Friday morning, with VIX around 9.50, there was a buyer of about 16,000 VIX Oct 11th 21 Calls for 0.10 who sold about 8,000 VIX Nov 1st 16 Calls for 0.60 each.  This results in a net credit of 0.40 for each ratio diagonal spread.  Also, worth pointing out is that both legs are in VIX Weeklys and not standard expirations.  The payout scenarios are infinite so I’m just going to show a couple before expiration along with how things work out if all options expire with no value.

In order to guesstimate (that’s the accurate word here) where this trade might be next Friday I have to assume how the October 11th and November 1st VIX curves would reaction to a move higher from VIX.  This first payoff diagram assumes a flattening of the curve if VIX moves up to 15 and then an inversion of the prices if VIX moves higher.

VIX Curve Assumptions 09292017

Based on the curve assumptions above the profit or loss for this trade based on various VIX levels on Friday October 6th.  Note the unrealized P/L is negative anywhere from 10 up to the low 20’s.

VIX PO 1 09292017

The payout for October 11th settlement is my second guesstimate for the progression of this trade.  Once again, the short leg is holding up well which keeps this from being much of a profit unless we have a huge pop in volatility.

VIX PO 2 09292017

Finally, I take things to November 1st expiration assuming that the long and short legs of this trade expire out of the money at the two expiration dates.  Basically, it is a picture of being short the Nov 1st 16 Calls at 0.40.  We have to guess the trader behind this spread is hoping to catch a small volatility spike, trade out of the long leg taking in some more premium and then hold into November 1st settlement with the expectation that the settlement print will come in below 16.00.

Weekend Review – Volatility Indexes and ETPs – 10/1/2017

The S&P 500 continues to power higher finishing the week (and 3rd quarter) at an all-time high.  The price action last week pushed all the SPX related volatility indexes lower, but not by much.  All were already low and testing levels that have been pretty much a floor before the week commenced.


The long VIX related ETPs reacted as would be expected with VIX hovering in single digits last week with VXX down about 5% and UVXY losing just under 10% on the week.

VIX ETFs 09292017

For the year, SVXY is up over 100% and the other funds have done what they do coming under pressure as VIX futures pricing drifts lower into a spot VIX price that on average is the lowest on record thus far in 2017.

VXX SVXY UVXY 09292017 Perf

Across the spectrum of CBOE volatility indexes things were actually mixed last week.  We are approaching earnings season which likely places VXGS, VXGOG, and VXAPL at the top of the list.  A bit of surprise to me was RVX in 4th place, small caps just finished up a strong quarter on both an absolute and relative basis when compared to large cap stocks.  One would think this would result in a lower RVX.

Vol Index Prices 09292017


Short volatility has been the place to be in the volatility space in 2017.  There are many ways to play the short side of VIX and options on VXX offer up all kinds of short volatility alternatives.  Early Friday, with VXX around 39.90 a trader sold the VXX Oct 20th 37.00 Calls in a few lots at prices around 3.50 and then purchased the Oct 20th 39 Calls for 2.50 taking in a credit of 1.00.  As seen below, the goal is for VXX to be under 37.00 at October standard expiration, which is a reasonable outlook if VIX and VIX futures keep acting as they have this year.

Large Buyer of VIX Calls Today at CBOE

Another big bullish VIX trade came into the pit today, with VIX just over 10.00 and the October futures at 12.20, a buyer of about 100,000 VIX Oct 17 Calls came into the market paying 0.45 for the whole lot.  The trade got divided up around the pit in several pieces, which shows up in the time and sales from LiveVol below.

VIX Trades

There’s just under 3 weeks October 18th when these options settle on the market open so the buyer is either speculating on a volatility spike, or guarding against one using long VIX exposure as a hedge.   The comment I heard in the VIX pit was, “This seems a little unusual”, probably as most long volatility plays come in the form of a spread to lower the cost of the trade.   Either way, it’ll be interesting to keep an eye on the 17 line for the next few weeks.

New Daily Volume Record of 2.61 Million for VIX Options, as Investors Engage in Hedging and in Short VIX Futures

On September 25th a new daily volume record of 2.61 million contracts was set for options on the CBOE Volatility Index® (VIX®), as the VIX Index rose 6.5% to close at 10.21 that day.


Four of the top ten days for VIX options volume occurred in 2017.


Recent news coverage has highlighted investor use of both VIX options and VIX futures.

A September 25 news story in Reuters entitled “VIX options volume jumps as trader hedges against stock market sell-off” noted that –

“ …More than 2 million contracts changed hands in a spread trade, the largest ever in VIX options, according to Trade Alert data. A trader bought about 261,000 Oct. 12 puts and sold the same number of Oct. 15 calls and twice as many of the Oct. 25 calls. At the same time, the trader sold 261,000 Dec. 12 puts and twice as many Dec. 25 calls, to buy 261,000 Dec. 15 calls. … The net effect of the trade was to position the trader for a lift in the VIX to the 15-20 level by December. …”

A September 25 Moneybeat blog at wsj.com entitled “Back in Vogue: Betting on the VIX to Fall” noted that —

“ …Hedge funds and other speculative investors ramped up bearish bets on the CBOE Volatility Index, or VIX, to the most in over a month, according to data from the Commodity Futures Trading Commission. Net bearish bets on the VIX outnumbered bullish bets by the group by 96,601 contracts for the week ending Sept. 19. Those investors had 70% more short bets than long bets on the index for the week ending Sept. 19. … “


For purposes of analyzing trading activity in VIX options, the CBOE VIX of VIX Index (ticker VVIX) can serve as a useful metric because it is a measure of the market’s expectations and is an indicator of the expected volatility of the 30-day forward price of the VIX.

Over the past decade, the average daily closing values were 87.7 for the VVIX Index and 20.4 for the VIX Index. However, more recently, (as shown in the chart below), from August 25 through September 25, the average daily closing values were 11.3 for the VIX Index and 96.8 for the VVIX Index.


To access price charts and price history for the VIX and VVIX indexes, and to learn more about use of VIX futures and options for your portfolio, please visit www.cboe.com/VIX and www.cboe.com/volatility.

Large VIX Roll Trade from Today

Back in the day, when I was a lad in Junior High School, the Dead Kennedys remade the theme to the TV show Rawhide.  The song begins, “Rollin’ rollin’ rollin’”, which is the ear worm I get when I see a trade like we had in the VIX pit today.  Specifically, an October spread that got put on in July was rolled out to December.

The first part of the story begins on Friday July 21st when a trader initiated a spread that sold 1 VIX Oct 12 Put for 0.75, purchased 1 VIX Oct 15 Call for 1.45, and the sold 2 VIX Oct 25 Calls for 0.45 each for a net credit of 0.20.  This spread was traded a little over 260,000 times (260,000 of the 12 Puts and 15 Calls and 520,000 of the 25 Calls).  The payout if held to October expiration appears below.


So today, the trader rolled this position from October to December.  They bought the VIX Oct 12 Puts for 0.87, sold the VIX Oct 15 Calls at 0.63, and then covered the VIX Oct 25 Calls for 0.15 each.  Exiting the October position cost 0.54 per spread.  The December position was initiated in the same contracts with 1 VIX Dec 12 Put being sold for 0.80, 1 VIX Dec 15 Call purchased for 1.80, and 2 VIX Dec 25 Calls sold for 0.67 each for a net credit of 0.34.  Combining the October and December legs resulted in a cost of 0.20, which is equal to the credit taken in back in July.  The payoff below shows how this trade would work at different levels upon December expiration.


Note the second payoff diagram is very similar to the first, but shifted down a little bit.  Odds are the trader behind this transaction would either take some profits on a volatility spike or hold if they truly believe a higher VIX settlement is expected in December.  The third alternative might be rolling to a farther expiration when December expiration approaches which will result in a little more of the Dead Kennedys ringing in my ears.

Options on Ten Select Sector Indices To Launch

On September 12 CBOE Holdings, Inc. announced plans to expand its suite of product offerings tied to S&P Dow Jones Indices with the planned launch of options on the 10 S&P Select Sector Indices that comprise the S&P 500 Index, a key benchmark of the U.S. equities market.

  • Options will be available on 10 sectors that comprise the S&P 500, pending regulatory approval.
  • The new options are expected to hold particular market appeal for European investors interested in targeted exposure within key U.S. equity benchmarks.
  • Further expands CBOE’s successful suite of products tied to S&P Dow Jones Indices, with trading and settlement features similar to CBOE’s S&P 500 options (SPX).



CBOE Holdings President and Chief Operating Officer Chris Concannon delivered remarks on sectors to attendees of the 6th annual CBOE Risk Management Conference (RMC) Europe, currently taking place near London. “We are excited that we will be able to provide exposure to these key U.S. sector indices for European customers who have been keen to incorporate U.S. sector investing strategies into their portfolios, but have not had access to an efficient trading vehicle to realize this strategy,” Mr. Concannon said.


The table provides index ticker symbol, options trading symbol, approximate notional value covered by index options with a $100 multiplier on September 1, 2017 (if they were available on that date), and the average 30-trading day historic volatility over 5 years for each of the 10 indexes. In addition, Chart 5 below shows how historic volatility had changed since 1998 for the Tech and Energy sectors.


 Nine of the ten S&P Select Sector indices have a price of 250 on June 30, 1998, while the S&P Real Estate Select Sector Index (IXRE, SIXRE) has a shorter price history and has a price of 100 on December 30, 2011. To facilitate easier comparison of the nine indexes with price history back to 1998, I created Chart 3 and Chart 4 below. In Chart 3, the (Consumer Discretionary) IXY Index rose 261% while the (Financial) IXM Index rose only 21%.



In Chart 4 the IXV (Health Care) Index rose 226%, while the IXU (Utilities) Index rose 121%.


The table in Chart 2 above presents the historic volatilities for all ten S&P Select Sector indices.

Chart 5 below shows the historic volatility since 1998 for the IXE (Energy) and IXT (Technology) indices. The volatility for IXT generally was higher in 2000 to 2002, while the volatility for IXE often was higher in recent years.


Chart 6 below shows that the S&P Consumer Discretionary Select Sector Index (IXY, SIXY) and the S&P Industrials Select Sector Index (IXI, SIXI) both had high correlations of 0.90 versus the S&P 500 Index, while lower correlations versus the S&P 500 Index were shown for both the S&P Real Estate Select Sector Index (IXRE, SIXRE) (0.46) and for the S&P Utilities Select Sector Index (IXU, SIXU) (0.21).


CBOE Select Sector Index options are designed to potentially be problem-solvers for European asset managers who want exposure to these U.S. index sectors, but cannot hold physical delivery exchange-traded product (ETP) options in their funds because of EU regulations around UCITS (Undertakings for the Collective Investment of Transferable Securities). The options on the Select Sector Indexes are designed to provide simple, straightforward market access to these key U.S. equity sectors for European investors.


For more information on the planned options on S&P Select Sector Indices, including links to more than 100 price charts, and a Fact Sheet with key options specifications, please visit www.cboe.com/Sectors.




Record Days for VIX Futures and Options Volume and Open Interest This Month

Despite the fact that the average daily closing value of the CBOE Volatility Index® (VIX®) is about 11.5 so far this year, VIX futures and options both had record days for volume and for open interest this month.

OPEN INTEREST RECORDS. VIX futures hit a new record for open interest with more than 673,000 contracts on August 7, and VIX options reached a new record for open interest with 14,783,380 contracts open on August 15. 

VOLUME RECORDS. August 10 was an all-time record volume day for both VIX futures (volume of 942,109 contacts) and for VIX options (volume of 2,538,121 contracts). 


This year many financial professionals have raised the issue as to whether the VIX level appears to be “low” compared to the levels of worldwide financial insecurity.  At the 70th CFA Institute Annual Conference in May 2017, Richard Thaler of the University of Chicago opined that the “low” level of the VIX Index was one of the biggest financial mysteries of our time. As shown in the chart below, in 2017 the averages of the daily levels were 11.5 for the VIX Index and only 7.1 for the 30-trading-day historic volatility of the S&P 500 Index. Compared to the SPX historic volatility, the VIX Index has not necessarily been “low” this year.

The fact that the VIX Index has been higher than SPX historic and realized volatility means that there has been a volatility risk premium. Some professional money managers who consistently sell index options like to see the volatility risk premium. Benchmark indexes that take advantage of the volatility risk premium (such as the CBOE S&P 500 PutWrite Index (PUT) and the CBOE S&P 500 30-Delta BuyWrite Index (BXMD)) generated relatively strong risk-adjusted returns over three decades, according to a research paper by Wilshire – Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016).


Demand for disaster protection using index options has been high this year. Note in the volatility skew chart below that the implied volatility was highest for the out-of-the-money VIX calls (at 120% moneyness) and the out-of-the money SPX puts (at 80% moneyness)

On August 18 I posted a blog on the CBOE SKEW Index that noted “The long-term daily average for the SKEW Index (since January 1990) is 118.8, but the daily average for the SKEW Index in 2017 (through August 17) is a much higher 134.5. …”

An August 24 story in the Financial Times noted that –

“Investors seek more protection against risk of a Wall St plunge A gauge that tracks hedging against a fall in US stocks is near a record level …       The CBOE SKEW index, which is meant to reflect concern about “tail risk”, or events roiling the markets, rose to 148.62 last week, its third highest reading … “


To learn more about ways in which the powerful VIX futures and options can be used for portfolio management, please visit www.cboe.com/VIX.



New Single-day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4%

An August 10 press release by CBOE Holdings stated that —

“ … trading volume in options and futures on the CBOE Volatility Index® (VIX®) each reached new all-time highs on Thursday, August 10. In VIX options at CBOE, a reported 2,562,477 contracts traded on Thursday, surpassing the previous single-day record of 2,382,752 contracts on February 3, 2014. Year-to-date through the end of July, average daily volume in VIX options was 687,181 contracts, 11 percent ahead of the same period a year ago. In VIX futures at CBOE Futures Exchange (CFE), a reported 939,297 contracts traded on Thursday, surpassing the previous single-day record of 791,788 contracts on October 15, 2014. Of the 10 busiest trading days of all-time for VIX futures, four have occurred in 2017. Year-to-date through the end of July, average daily volume in VIX futures was 283,342 contracts, 20 percent ahead of the same period a year ago.”

A story posted at nytimes.com noted that —

“… After a record-breaking run of buoyant market behavior, investors appeared unnerved on Thursday by a series of provocative remarks by President Trump and increasing tensions with North Korea. …”


On August 10 the VIX Index jumped 44.4% to close at 16.04. The move was the ninth-biggest one-day move (in percentage terms) for the VIX Index. Note that in the table below with ten dates that the S&P 500 Index fell farther than the CBOE S&P 500 PutWrite Index (PUT) on all ten dates, and that option-writing strategies often are designed to provide a cushion in the event of a downward move in the stock index.




As shown in the next table, several other volatility indexes also rose on August 10, including the CBOE Equity VIX on Apple (VXAPL) (up 22.4%) and the CBOE VIX of VIX Index (VVIX) (up 26.7%).


In addition to this month’s single-day volume records, the VIX futures set another new record with more than 675,000 open interest. VIX futures open interest has more than doubled since January 2016. I find it interesting to examine the table below with its comparison of VIX futures open interest and VIX Index values. While some observers assume that high volatility levels are  associated with high volume and open interest figures, in the chart it appears that at times VIX futures open interest increased when the VIX Index was well below its long-term average levels.



While there is much press coverage of movements of the spot VIX Index, the index is not investable. Investors who are interested in VIX-related investable instruments can explore the pricing of VIX futures. The table below shows that the last prices for VIX futures with 14 different expiration dates ranged from 14.75 to 17.45 at around 7:05 p.m. Chicago time on August 10.


To learn more about how VIX futures and VIX options can help in the management of portfolios, please visit www.cboe.com/VIX.



Weekend Review of Volatility Indexes and ETPs – 7/30/2017

On a week over week basis the S&P 500 was down fractionally.  One would not assume such a small move from SPX when looking at the VXST – VIX – VXV – VXMT curve below.  VXST and VIX made nice moves to the upside while the longer end of the curve moved up a bit less resulting in a slight flattening of the curve.

VXST VIX VXV VXMT Curve 7282017
The long funds that focus on the first and second month futures were up slightly while the short funds were down slightly.  SKEW and VVIX both moved up nicely last week which should be encouraging for volatility bulls or equity market bears.

VXX Table 07282017

The three funds that represent long (VXX), daily double long (UVXY), and daily short (SVXY) have had very divergent performance this year and last week didn’t really change much on the year to day performance below.  SVXY did manage to top up 100% early in the week before falling off a bit.

VXX UVXY SVXY Perf 07282017

The majority of volatility indexes quoted by CBOE were higher last week.  If it weren’t for earnings from GOOG, IBM, and AMZN which resulted in a volatility crush in options on those stocks there would probably be more green on the table below.

Vol Index Prices 7282017


Early Thursday, before volatility finally started to get moving someone came in and bought a large number of out of the money VXX calls with an outlook that appears to hope for an overdue volatility spike between now and September 15th.  With VXX at 11.00 they purchased just over 2500 of the VXX Sep 15th 15 Calls for 0.34.  Note about a 40% move is needed for this trade to break-even at expiration, for most markets that’s unheard of, but not in the volatility world.

Weekend Review of VIX Futures and Options – 7/30/2017

This past week is one of those weeks where those new to VIX futures get a lesson in price behavior and the lack of fair value that exists between the futures and the spot index.  VIX rose almost 10% on the week, the August contract was unchanged and the rest of the curve actually moved lower.  The curve had been steep and the result was futures not budging too much when VIX got moving to the upside.

VIX Table and Curve 7282017

As we enter the last five months of the year I would like to highlight where we are compared to VIX history going back to 1990.  Below is a chart showing the high, low and average close by year for the full history of VIX.

VIX H L Avg 7282017

We have been fixated on putting in a new all-time closing low (9.31 in 1993), which has not happened.   However, the average closing price for VIX in 2017 is 11.39 which is a full point below the average closing low for VIX that occurred in 1995.  In order to avoid 2017 having the lowest VIX average close on record we need to average about 13.74 over the remaining 107 trading days this year.  That would involve a pretty sustained volatility event considering how quickly VIX drops after any sort of strength these days.  I’m not saying it is going to happen, I’m just pointing out what has to happen.

Finally, with an hour to go in the trading day on Thursday one trader came in who does not think VIX is going anywhere above 13.00 over the next few weeks.  With VIX at 10.80 and the September contract at 12.80 there was a seller of the VIX Sep 13.00 Calls for 1.42 who then purchased the VIX Sep 20 Calls for 0.56 taking in a net credit of 0.86.  The payoff at September 20thAM settlement shows up below.

VIX PO 7282017

Of course, the goal is for standard September VIX contracts to settle below 13.00, but anywhere under 13.86 would result in at least a partial profit.  Of the 144 trading days, we’ve experienced in 2017 only 11 have had closed over 13.86, so at least based on recent history this may be a smart trade.


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