CBOE SKEW Index Rose to 143.26, Its Highest Level Since 1998 – By Matt Moran

The median of the daily closing values of the CBOE Volatility Index® (VIX®) so far this year has been 13.7, which is below the long-term median value of 18.3 for the VIX since 1990. The fact that the VIX lately has been below its long-term median has led some people to ask whether there now is too much complacency in the markets. However, in the charts below, the SKEW Index and the SPX volatility skew could suggest that some investors are not complacent at all, and there is strong demand for out-of-the-money (OTM) protective puts on the S&P 500® (SPX) Index.

This past Friday (June 20) the CBOE SKEW Index rose to 143.26, its highest level since Oct. 16, 1998.


CBOE SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence. The value of SKEW increases with the expected tail risk of S&P 500 returns. If there were no tail risk expectations, SKEW would be equal to 100. Historically, SKEW has varied in a range of 100 to 147 around an average value of 115.

The FAQ on the CBOE SKEW Index notes that –

“The price of S&P 500 skewness is inconvenient to use directly as an index because it is typically a small negative number, for example -.8, -2.3, or -4.3. SKEW converts this price as follows: SKEW = 100 – 10 * price of skewness. With this definition, a price of -2.1 translates to a SKEW value of 121. S&P 500 options with 30 days to expiration are generally unavailable. SKEW is therefore interpolated from two “SKEW” values at the maturities of nearby and second nearby options with at least 8 days left to expiration.”

CNBC recently posted a new blog on the “Back Swan” Index.


The chart below shows Bloomberg’s estimates for 30-day implied volatility at different strikes for AAPL, USO and SPX options. The implied volatility for some key index options that could be used for disaster protection fr stock portfolios – the out-of-the-money (OTM) SPX puts – was higher than the implied volatility for the related at-the-money (ATM) index options. Bloomberg’s estimates of 30-day implied volatility included 21.1 for 10% OTM SPX puts and 9.9 for ATM SPX options. The fact that the SPX chart below had such a negative slope was closely related to the fact that the CBOE SKEW Index recently hit its highest point in more than a decade.

Vola Skew AAPL USO SPX Jun 25


The VIX and other volatility indexes can be very valuable tools for investors, as the indexes are well-known, numerical gauges that show changes in expected volatility over time. Investors can now use a number of volatility indexes — (1) the new CBOE Short-Term Volatility Index (VXST), (2) CBOE Volatility Index (VIX), and (3) CBOE 3-Month Volatility Index (VXV) — to gain an understanding of expected volatility of the S&P 500 over different time periods, and can use the VVIX Index for expected volatility of the popular VIX Index.

However, none of these volatility indexes gives investors much information regarding the fact that implied volatility can vary across different strike prices. The CBOE SKEW Index can provide valuable information and signals to investors above and beyond the information supplied by the VIX Index. The SKEW Index could be helpful to both hedgers and traders in identifying times in which OTM SPX puts are relatively expensive compared to ATM options. The SKEW Index could be a valuable informational tool to investors who are considering engaging in the vertical spread strategy, an options trading strategy with which a trader makes a simultaneous purchase and sale of two options that have the same expiration dates and same underlying security but different strike prices. Hedgers who contemplate the purchase of SPX OTM protective puts can use both the VIX and SKEW indexes to gain a better idea of the relative cost of the strategy.

The CBOE SKEW Index provides valuable historical and up-to-date information to investors and hedgers, and can serve as a great complement to the CBOE’s volatility indexes. More information and price history is at www.cboe.com/SKEW.

VIX Futures Now Round-the-Clock, as ETH Volume Tops 1.68 Million Y-T-D — By Matt Moran

Futures on the CBOE Volatility Index® (VIX®) now are available nearly 24 hours a day, five days a week (see below for more details). Trading volume for VIX futures during Extended Trading Hours (ETH) has topped 1.68 million contracts so far in 2014.

The charts below show key daily values in 2014 that you could compare – the VIX daily closing values, the 30-day historic volatility of the S&P 500® Index, and the daily volume in VIX futures during ETH.

VIX and ETH Jun 23

Since January 1990, the long-term average of daily closing values of the VIX is 20.1, and the long-term median value of daily closing values of the VIX is 18.35.

On June 23rd –

  • the VIX Index closed 10.99,
  • the VIX Sept. ’14 futures closed at 14.60,
  • the 30-day historic volatility of the S&P 500 Index was 6.89, its lowest daily value since January 2011.

For investors who want to lock in stock market gains and who think that in the near future the VIX could rise substantially with a correction in stock index values, strategies that could be explored include long VIX futures, long VIX call options, and protective puts with SPX options.
Beginning on Sunday, June 22, 2014 at 5:00 p.m. for the business day of Monday, June 23, CBOE Futures Exchange, LLC (CFE) is expanding trading hours in CBOE Volatility Index (VIX) futures to be nearly 24 hours a day, five days a week. Specifically, the trading week for VIX futures now begins on Sunday at 5:00 p.m. and ends on Friday at 3:15 p.m. CFE will be closed for trading on Monday through Thursday for 15 minutes between 3:15 p.m. and 3:30 p.m. and trading for the new business day will begin at 3:30 p.m. on Monday through Thursday. CFE will close at 3:15 p.m. on Friday and will remain closed until 5:00 p.m. on Sunday, when the new trading week will begin. Regular trading hours in VIX futures will continue to be from 8:30 a.m. to 3:15 p.m. Monday through Friday and trading in VIX futures during all other times will be extended trading hours.

For more information and delayed price quotes, please visit www.cboe.com/VIX and www.cboe.com/ETH.

SPX Historic Volatility Falls To 6.89, Its Lowest Level Since Jan. 2011 – By Matt Moran

JUNE 23, 2014 – Today the 30-day historic volatility of the S&P 500® (SPX) Index fell to 6.89, its lowest level since January 2011, according to Bloomberg calculations.

VIX SPX Hist Vol 2010

Chris Dietrierich of the Wall Street Journal wrote –

“… The Dow Jones Industrial Average has gone 32 months without a 10% decline, the fifth-longest run on record. The S&P 500 hasn’t closed up or down 1% in 46 days, the longest stretch since 1995. Yet the number of outstanding options contracts that profit from a rise in VIX futures ended Wednesday at its highest level since January’s all-time high, at 8.1 million …”

Some investors have asked if the CBOE Volatility Index® (VIX®) Index recently has been at unusually “low” levels. Since January 1990, the long-term average of daily closing values of the VIX is 20.1, and the long-term median value of daily closing values of the VIX is 18.35.

On June 23rd –

  • the VIX Index closed 10.99,
  • the VIX Sept. ’14 futures closed at 14.60,
  • the 30-day historic volatility of the S&P 500 Index was 6.89.

So while the VIX Index at 10.99 is below its long-term median value, the historic volatility of the S&P 500 Index (at 6.89) is quite a bit lower than the VIX Index. The S&P 500 Index has been on a pretty smooth upward ride, and one could say that VIX is not particularly “low” if it is more than 4 points higher than 30-day historic volatility. For investors who want to lock in stock market gains and who think that in the near future the VIX could rise substantially with a correction in stock index values, strategies that could be explored include long VIX futures, long VIX call options, and SPX protective put options. This is the first week that VIX futures are available nearly 24 hours a day, five days a week.
For more information, charts and delayed quotes, please visit www.cboe.com/VIX and www.cboe.com/SPX.

Last Week in VIX – 6/22/2014

VIX is low. That could be the end of the blog, but there is more to it than just saying VIX is low. Please note I didn’t say ‘too low’ since there is no such thing. If the VIX tourists know that with the S&P 500 continuing to defy all skeptics and pushing higher VIX is toying with putting up a sub 10 price that would result in a blog in this space discussing what happened after VIX closed below 10 back in the day (2007).


The July VIX future at 12.90 is more startling to me than VIX closing at 10.61 on Wednesday of finishing the week at 10.85. Selling a VIX future that has 16 trading days remaining until settlement under 13.00 is kind of a scary prospect, regardless of where the spot index is being quoted.


Finally, I almost forgot to mention the big event come Sunday night (no not Soccer) VIX futures will begin trading at 5:00 for the launch of trading almost 24 hours a day.  If it is past 5:00 Chicago on Sunday you can go to cfe.cboe.com and see what VIX futures are doing in their first session to match up with Asian market hours.

Last Week in Gold and Oil Volatility – 6/22/2014

The price of oil remains a bit elevated based on extra perceived risk in the Middle East. Despite the price of a barrel of oil well over $100, the lack of follow though from previous moves higher resulted in OVX backing off slightly last week.



The price of gold woke up a bit with a move to the upside this past week of over 3%. This woke GVZ up for a moment (see 6/19 on the chart below) and then GVZ went right back to sleep. Over 80% trading days in 2014 have seen GLD close between 120 and 130, until we get a real break of one of those prices GVZ will probably remain at depressed levels.


The OVX curve tells an interesting story – the spot index dropped last week – but all three futures contracts rose. That’s market nervousness pushing volatility higher which could be taken as an outlook for higher oil prices before the summer is over. On the other hand (when did I become an economist?) the GVZ curve basically says more of the status quo for GLD meaning the 120 to 130 price range is expected to hold.


VXST Last Week – 6/22/2014

VIX closed at the lowest levels since February 2007 this past week which can also be referred to as a post financial crisis low. VXST held up a little better than VIX and didn’t follow the longer dated volatility index to new lows. CBOE has data going back to the beginning of 2011 and the record closing low was a couple of weeks ago on June 6th at 9.25. VXST is new and comparisons to VIX are still being interpreted. I always felt a significant low in VIX (like Wednesday’s 10.61 close) would be confirmed or at least accompanied by a significant low in VXST. So much for that theory…



The VXST curve pricing shares a combination of upcoming events and reaction to the current market environment. Note on the graph below the highest closing futures contract is the one that expires on July 9th – that’s the first one after the next employment number and this is sort of an expected pattern that is developing with respect to VXST futures pricing.


NASDAQ-100 and Russell 2000 Volatility Last Week – 6/22/2014

The Russell 2000 (RUT) had a strong week gaining over 2% which places RUT up just over 2% on the year as well. It has been well documented that the Russell 2000 is lagging other broad based market indexes in 2014 after being the champ in 2013. This has also translated into elevated relative implied volatility levels. Translated into English this means RVX has been high relative to VIX in 2014. RVX was under pressure last week (as was VIX) losing over 12%. However, Friday’s close of 15.84 was two volatility points higher than the low in 2013. Again, translated into layman’s terms RVX continues to signal the market believes there is more risk in small cap stocks than large cap stocks.



The NASDAQ-100 (NDX) was up by 0.72% last week and the result was about a 10% drop in VXN. VXN finished the week at 12.27 which was the lowest level since March of last year when VXN put in a closing low of 12.03 on March 15th.


The term structure curves are both fairly steep as July takes over as the front month. It could just be that the state of the world has the stock market on edge this summer and with the S&P 500 hitting all-time highs market participants are aware there is a long way to drop if a true correction comes along.


Emerging Market Volatility Last Week – 6/22/2014

Things were fairly quiet for the emerging market sector as the iShares Emerging Markets ETF (EEM – 43.56) was down slightly last week. It could be all that football occupying people’s time which will continue for a few more weeks. In reality I doubt that’s the cause, but every single article these days about emerging markets or the Brazilian economy mentions the World Cup and I feel like I must align myself with the status quo. By the way, the VXEEM close of 15.08 on Friday was just 0.08 higher than the record close of 15.00 back in February of 2013.



Brazil is all about the World Cup these days, but there are also some real economic issues to focus on as well. The emerging markets column in Barron’s this weekend notes that the Brazilian economy is experiencing stagflation which is a negative. However, the Brazilian stock market has been very strong in light of the difficult economic environment. The bad news is good news has also kept VXEWZ at relatively low levels.


The quiet market resulted in a drop in VXEEM and a steepening of the VXEEM term structure curve. VXEWZ was higher last week and that curve flattened a bit.  Despite positive reactions to bad news, VXEWZ may be looking beyond the World Cup when the country gets back to focusing on business.


Volatility Indexes and ETPs Last Week – 6/22/2014

Another all time-high for the S&P 500 was matched by a post-2008 low for VIX on Wednesday of 10.61. Despite putting in lower lows on Thursday and Friday, VIX did manage to creep higher into the weekend. On a week over week basis all the S&P 500 related volatility indexes moved down, exactly the sort of price action we become pretty accustomed to over the past few months.


In the ETN space VXX moved below 30.00 dropping over 7% on the week as June VIX futures settled on the open Wednesday. VXX now is comprised of positions in July and August VIX futures and on Monday the weighting will be a little over 80% in July with the rest focused on August. As long as VIX remains low and the futures drift down to VIX the VXX is going to have a tough time getting back in to the 30’s.

Indexes ETPs

RMC Europe to Feature Speakers from BlackRock, Parametric, et al. – By Matt Moran

The 3rd Annual CBOE Risk Management Conference (RMC) Europe will be held at the beautiful Powerscourt Hotel, Enniskerry, County Wicklow, Ireland, on Sept. 3 – 5, 2014. The tentative agenda for RMC Europe is posted at http://www.cboermceurope.com/agenda, and a list of select speakers also is below in this Blog.

The many topics to be covered at the 3-day conference will include: (1) Options and Volatility Market Client Demographics, (2) Trends in Institutional Options and Volatility Product Usage, (3) The Volatility Surface: Skew and Term-Structure, (4) Volatility of Volatility, (5) Cross Asset Volatility Strategies for Tail Hedging and Alpha Generation, and (6) Correlation and Dispersion: What they Mean and How to Trade Them.

Included among the list of speakers on the tentative agenda for RMC Europe 2014 are the following experts –

• Tim Edwards, Director of Index Investment Strategy, S&P Dow Jones Indices
• Colin Bennett, Managing Director, Head of Quantitative and Derivative Strategy, Banco Santander Central Hispano
• Andy Nybo, Principal, Head of Derivatives, TABB Group
• Steven M. Sears, Senior Editor and Columnist, Barron’s
• Leaf Wade, Head of US Derivatives Sales into Europe, UBS
• David Hauner, Head of EEMEA Economics & FI/FX Strategy, Bank of America Merrill Lynch
• Kokou Agbo-Bloua, Head of Equity & Derivatives Strategy Europe, BNP Paribas
• Robert McGlinchey, Derivatives Editor, Global Capital
• Jean-Francois Bacmann, Portfolio Manager and Head of Volatility Strategies, Man AHL
• Stephen Crewe, Portfolio Manager, Fulcrum Asset Management
• Andrew Rozanov, Managing Director, Permal Investment Management
• Jay H. Strohmaier, CFA, Senior Portfolio Manager, Parametric Clifton Group
• Dr. Christoph Gort, Partner, SIGLO Capital Advisors
• Pav Sethi, Chief Investment Officer, CEO, Gladius Investment Group
• Natasha Jhunjhunwala, Equity Derivatives Product Management, Credit Suisse
• Sheldon Natenberg, Co-Director of Education, Chicago Trading Company, LLC
• Dominic Salvino, VIX Specialist, Group One, LLC
• Jean-Gabriel Prince, Portfolio Manager, BlackRock
• Abhinandan Deb, Head of European Equity Derivatives Research, Bank of America Merrill Lynch
• Pete Clarke, Global Head of Equity Derivatives Strategy, UBS
• Yoshiki Obayashi , Founder, Applied Academics, LLC
• Angel Serrat, Partner & Chief Strategist, Capula Investment Management
• Pin Chung, Chief Financial Officer and Chief Investment Officer, R+V International Business Services Limited
• Rachid Lassoued, Head of Financial Engineering, Bloomberg
• Daniel Danon, Senior Vice President, Portfolio Management & Structuring, Assenagon Asset Management

Please visit http://www.cboermceurope.com/ for information on more speakers, topics, updates, and details re: travel and registration.


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