Weekend Review of VIX Futures and Options – 5/28/2017

VIX finished the week at 9.81, just a tad above the post 2008 lows put in earlier this month.  The June 2017 VIX cycle is five weeks long so there’s still plenty of time until June 21st expiration.  The result is one of the steepest curves a can recall in the six years of posting these weekend blogs.

VIX TS Table 5262017

Friday, about an hour into the trading day, there was an interesting bull put spread executed in the VIX pit.  With VIX at 9.80 and the June 7th VIX Future at 10.80 someone sold the VIX Jun 7th 11.50 Puts for 1.11 and the purchased the VIX Jun 7th 9.50 Puts for 0.05 taking in a credit of 1.06.  If held to June 7thexpiration the trade makes money as long as settlement comes in above 10.44.

VIX PO Corrected

This trade risks 0.94 to make 1.06 with the maximum potential loss coming if June 7th VIX AM settlement comes in below 9.50.  For me, the result here is a great example of how VIX Weeklys options can be used and how traders can take advantage of what they make believe is VIX at unsustainably low levels.

Weekend Review of VIX Futures and Options – 5/21/2017

The term structure and payoff below does not do any justice to what those of us that focus on VIX and related markets this past week.  In fact, when the dust settled, all the standard futures were hardly changed on the week.

VIX Quotes Table 519

Just to record what did happen last week I made a second term structure chart that includes the close on Wednesday in addition to the Friday closing curves.

VIX TS Fri Wed Fri

As Wednesday was one of the biggest moves for VIX to the upside in several months, there were a few brave traders that chose to take the other side of the move.  Just minutes before the very busy day came to an end there was a trader that sold about 5,000 VIX Jun 12.50 Calls for 2.37 who purchased the VIX Jun 19.00 Calls at 0.93 for a net credit of 1.44.  The payout below shows how this trade works out if held to expiration along with where VIX and the June VIX futures finished the day on Wednesday.

VIX PO 519

The June futures were at 14.25 and VIX at 15.59 to finish up Wednesday.  However, as we know, when the week came to an end both were much lower.  So far so good on this one.

Weekend Review – Volatility Indexes and ETPs – 5/21/2017

The week over week VXST – VIX – VXV – VXMT curve moved higher and appears to have done so in a very parallel fashion.  Since the week over week change doesn’t do the actual activity justice so I added the Wednesday closing curve to the graphic below.

VXST VIX VXV VXMT 5192017

I was honestly a little surprised at how little the S&P 500 dropped on a week over week basis and double checked the number.  I made a joking prediction Thursday morning that we would retrace the Trump Dump from Wednesday with in a week, that prediction is one good day early next week from being correct.  The long volatility ETPs did well and the short funds gave up some of the ground gained this year, but still hold a solid lead as the next chart will show.

VXX Table 519

VXX and UVXY got nice bumps in the middle of the week and SVXY got hit.  All fund changed course on Thursday and Friday, but not enough to result in a losing week for the long funds.

VXX SVXY UVXY 519

The Brazilian equity market came under pressure last week and the result was a huge move in VXEWZ.  Also, currency volatility was much higher across the board.

VIX and VVIX Indexes Both Jump More Than 45% on Wednesday, with Strong Trading Volumes

MAY 17, 2017 – Today both the CBOE Volatility Index (VIX) and the CBOE VIX of VIX Index (VVIX) rose more than 45%. Some U.S. news developments that impacted the financial markets today concerned the former FBI director James Comey and former National Security Adviser Michael Flynn.

TABLES WITH BIGGEST ONE-DAY MOVES

Today’s 46.4% move in the VIX Index was (in percentage terms) it sixth biggest move ever and its biggest one-day move (in percentage terms) since the Brexit vote.

Nine days ago (on May 8) the VIX Index closed at 9.77, its lowest daily closing value since 1993.

Today the CBOE VIX of VIX Index (VVIX) rose 34.72 points (or 45.2%) – its second biggest up moves both in terms of points and percentages. The VVIX Index is an indicator of the expected volatility of the 30-day forward price of the VIX. This volatility drives nearby VIX option prices. The VVIX table below shows the days with the biggest up and down moves.

Today more than six other volatility indexes (including VXST, VXGS, JYVIX, VXAZN, VXV, and VXAPL) rose more than 20%.

3-MONTH PRICE CHARTS

The 3-month price charts from Livevol below show the big upward moves on May 17 for both the VIX and VVIX indexes.

VIX FUTURES PRICES

The VIX Futures Prices table below shows that at 4:30 pm CT on May 17 (which actually was part of the May 18 trading day) the VIX futures prices ranged from 14.20 to 17.75.

HIGH TRADING VOLUMES ON MAY 17

  • The trading volume at the all-electronic C2 Options Exchange, Incorporated (C2) set a one-day trading record with reported trading volume of 966,604 contracts, surpassing a previous single-day record of 825,299 contracts set on November 9, 2016.
  • Trading volume on Bats’ two options exchanges, BZX and EDGX, also each had their second-busiest single trading days ever, with BZX trading a reported 3.9 million contracts and EDGX trading a reported 317,250 contracts. Bats is a CBOE Holdings company.
  • Trading volume at Chicago Board Options Exchange, Incorporated (CBOE) was a reported 7.6 million contracts, and combined reported trading volume at CBOE Holdings’ four options exchanges totaled nearly 13 million contracts on Wednesday.
  • In addition, CBOE Futures Exchange, LLC (CFE) today set its third-highest trading volume day with a reported 735,161 contracts. The flagship product of the CFE is VIX futures.

MORE INFORMATION

Visit www.cboe.com/volatility for more information about how to use volatility indexes and VIX futures and options.

Weekend Review – VIX Options and Futures – 5/14/2017

VIX was slightly lower on the week despite the S&P 500 dropping as well.  The near dated futures worked lower with May finishing Friday at premium of just over 0.80 as that contract goes off the board this coming week.  From August and beyond the futures were actually higher which creates a pretty steep curve below.

VIX Table TS 5122017

On Tuesday, we got what I am going to refer to as a MOAVCS (Mother of all VIX Call Spreads).  Near the end of the day a trader came in and purchased at least 195,000 VIX Jun 30 Calls for 0.13 and sold the same number of VIX Jun 35 Calls at 0.07 for a net cost of 0.06.  All this happened when the June VIX future price was at 12.40.

VIX PO 5122017

Since there’s some time until June expiration I decided to include the half way to expiration payoff for this vertical spread.  Note that as the June VIX future price moves higher, the spread actually starts to show and unrealized profit.  In fact, it appears that a move to 20.00 would turn this trade into an unrealized profit.

Weekend Review of Volatility Indexes and ETPs – 5/14/2017

This time last week we were all pretty certain that the final round of the French election was a done deal.  Short term SPX implied volatility wasn’t taking any chances with VXST closing last Friday at 11.40.  With the election outcome going as expected VXST got a little crushed and the shape of the VXST – VIX – VXV – VXMT curve moved back to contango.

VXST VIX VXV VXMT 5122017

Both the S&P 500 and VIX dropped last week, as the number of potential stock market land mines over the next few weeks (that we can see coming) is limited.  VVIX inched up a bit as some traders took advantage of low VIX option IV to get long volatility exposure.  SKEW moved lower which is interesting with VIX so close to 10.00.  It may just be that no one is worried about a black swan any times soon, which of course by definition is when they happen.  A glimmer of hope for the longer term VIX bulls shows up in the performance of VXZ which is based on owning a basket of August, September, October, and November VIX futures contracts.

VXX Table 5122017

Of great interest on the table below is the move higher in both VXAPL and VXIBM.  Apparently, Warren Buffett has been adding to his AAPL position and scaling back his IBM holdings which may have sparked option trading after last weekend’s Berkshire get together in Omaha.  Apparently the call buying was aggressive enough in the AAPL arena that the skew for AAPL options was higher on the call side than the put side to start last week.  VXMT moved higher, which mirrors the move in VXZ above, which may make one wonder if the market is focusing on the fourth quarter of 2017 as the latest at which we will expect lower stock prices.

Vol Index Prices 5122017

 

For the mean time, long volatility continues to take it on the chin as both VXX and UVXY moved lower.  SVXY benefits from what is bad for the long funds and now is up almost 70% for 2017.

VXX UVXY SVXY Comp 5122017

I went searching the ETP option world for a very bullish trade to discuss this weekend.  When things are so quiet as represented by VIX, but at the same time there seem to be multiple geopolitical situations that could erupt at any moment some traders will be looking for a cheap method to be on the right side of a volatility spike.  UVXY call options are a great place to find such a trade and I didn’t have to look to hard to find a good one.

UVXY PO 5122017

On Friday afternoon with UVXY around 12.55 a trader purchased the UVXY Jun 9th 12.50 Calls for 1.26 and then sold the UVXY Jun 9th 21.00 Calls at 0.31 for a net cost of 0.95.  The payoff at Jun 9th expiration shows up below, although a quick volatility event would probably result in our trader monetizing some profits.

2017 Volume Rises for VIX and SPX Options, and for VIX Futures

Monday, May 8, 2017 – After the results of the French election were announced yesterday, this was a notable day in the options and volatility markets –

  • The CBOE Volatility Index® (VIX®) fell 0.80 points and closed at 9.77 (it lowest daily close since December 1993);
  • Bloomberg’s estimate of 30-trading day historic volatility for the S&P 500 Index fell to 6.52;
  • The CBOE SKEW Index (SKEW) fell 3.24 points to close at 128.12 (still well above its long-term-average of 118.6)

Today I received multiple questions from customers about press coverage of options volume trends. While many observers believe that low volatility often can inhibit options volume growth, some investors like the idea of purchasing relatively “cheap” options protection when the VIX Index is well below its long-term average.

TRENDS IN VOLUME AND OPEN INTEREST FOR KEY INDEX OPTIONS AND FUTURES

VIX futures average daily volume rose to 265, 954 in Jan.-April 2017, and it is up for the 11th year in a row.

VIX options average daily volume rose to 712,490 in Jan.-April 2017.

In March 2017 the VIX options open interest rose to more than 12.8 million contracts.

In March 2017 the VIX call options open interest rose to more than 9 million contracts.

SPX options average daily volume rose to 1,161936 in Jan.-April 2017.

MORE INFORMATION

To learn more about use of SPX and VIX options, and VIX futures, please visit www.cboe.com/SPX and www.cboe.com/VIX.

 

Weekend Review of VIX Options and Futures – 5/7/2017

VIX managed to (briefly) put in a post Great Financial Crisis low hitting 9.90 on Monday and sneaking in a 9.99 low on Friday as well.  Full disclosure, I didn’t even see the 9.99 print on Friday, but then again, we are getting conditioned against getting too excited when VIX dips below 10.  Worth noting below is the bigger drop in the May future when compared to spot VIX.  Typically, we see this closer to expiration, but when there’s very little on the horizon that the markets are worried about the curve will flatten and that’s the environment we are experiencing.

VIX Table Chart 05052017

Two weeks ago, the world was fixated on what was going to happen in the French election.  As a reminder, the second round is this weekend.  However, the markets aren’t terribly concerned about the potential outcome on Sunday and the VSTOXX curve is indicating the expectation for a quick drop in VSTOXX on Monday as the May future is at a 2 point discount to  the spot index.

VSTOXX Curve 05052017

This weekend’s highlighted trade was executed over the course of the day on Friday in several mid-sized chunks.  There was a buyer of the VIX Jun 21st 12.50 Calls who sold the same number of VIX Jun 21st19.00 Calls.  The individual option prices varied, but the majority of these spreads were executed at a cost of 0.87.  The trader gets some long volatility exposure between now and the longest day of the year.  The payoff diagram below shows the outcome at expiration and with 21 days to expiration or the midpoint on the calendar between Friday and expiration.

VIX Payoff 05052017

Weekend Review of Volatility Indexes and ETPs – 5/7/2017

The chart below may be one of the final references to the French Election which came to an end this weekend.  Note VXST, which reflects the IV of very short term SPX options was elevated going into the weekend.  I don’t think it is too much of a stretch to say that a quick drop in VXST may be in the cards come Monday morning.

VXST VIX VXV VXMT552017

SKEW dropping dramatically last week may be the last bastion of higher volatility dropping.  This happened despite VIX dropping which makes the SKEW move even more significant.  I was a bit surprised that TYVIX was higher, although off a very low base, since we got an FOMC meeting behind us last week.

VXX Table 05052017

SVXY is now a rounding error below up 65% for the year and UVXY is now down 70%.  It’s only May 5thand these numbers are more like what would be expected as the year comes to an end, not with about seven months to go.

VXX SVXY UVXY Comp552017

Two weeks ago, all volatility indexes quoted by CBOE were lower.  Many, but not all, rebounded last week.  I guess we need to keep an eye on China, Oil, and other emerging markets if the volatility index changes are to be believed.

Vol Index Prices 05052017

Finally, over the weekend I posted a chart that resulted in me being called some ugly names and my intelligence being questioned.  Thank goodness my children don’t have Twitter yet.  The chart below is the chart in question and now I attempt to explain it in more than 140 characters.

2007 2017 VIX Comp

I was asked by a reporter to double check what year was the last time VIX had moved below 10.00.  It turned out to be early 2007 so I took a stab a overlaying 2007 VIX daily price action with the year to date 2017 action.  Note that in the second half of 2007, as a prelude to the Great Financial Crisis, VIX made some dramatic moves to the upside.  The point here is that this can happen, not that it will.

Traders do well selling volatility when VIX is low and often give up profits when we get a quick move to the upside in VIX.  My goal is to make sure people trade smart and reminding a complacent market what can happen was my goal when posting that chart.

Weekend Review of VIX Options and Futures – 4/30/2017

Everyone knows what an ear worm is and if not you will now.  It is basically when a song is stuck in your head.  Since Monday REM’s Orange Crush has been on constant replay in my head.  VIX losing 26% and the front month down 14% definitely qualify as a volatility crush.

VIX Table TS 428

Since all this crushing was caused by events in Europe (France specifically) we will take a look at the week over week VSTOXX and associated futures term structure change.  Now I have Officer Barbrady from South Park in my head saying, “Nothing to see here”.  However, that’s anything but true.  VSTOXX got hammered as did the futures markets.  Worth noting is that as of Friday the May and June contracts at a discount to spot VSTOXX.  Between now and May expiration there is the final round of the French election and before June expiration we get an election in Great Britain.  It appears the markets expect there will nothing to worry about with either of these known unknowns.

VSTOXX 428

Late Friday, with VIX right at 11.00 and the standard May futures contract at 12.30 a fairly large and cheap trade came into the VIX pit.  A bull call spread was created with 12,000 May 20 VIX Calls purchased for 0.15 and 12,000 VIX May 21 Calls sold at 0.12 for a net cost of 0.03.  The payoff diagram below shows the payoff on May 17th AM settlement and a potential payoff with 10 days left to expiration.

VIX PO 428

Note the half way to expiration profit is nowhere near as the maximum payout for this trade as shown by the at expiration line above.  However, keep in mind the cost of this trade was 0.03 and exiting at 0.20 or 0.30 is a pretty nice return.

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