VIX Last Week – 11/8/2015

VIX finished the week closer to 14 than 15 based on a muted response to the employment number and a lack of known potential volatility events on the horizon.  The fear index did manage to spend a little time on Monday and Tuesday under 14.00 which is a level that many consider the new ‘floor’ for VIX since we are about to enter a period of increasing interest rates.    The futures all followed the index lower which would be expected with smooth sailing for the stock markets to be the consensus near term expectation.

VIX Curve - Table

I continue to plot the front five week VIX futures expirations in a generic format as shown below.  My goal is to get a handle on what we should consider a ‘normal’ short term VIX curve.  Flat to slight contango is what pops up when VIX is low.  The bump between the Week 4 (December 1st) and Week 5 (December 9th) futures had me checking the economic calendar, but I couldn’t find a good reason for that slight drop off on the right side of the chart below.

VIX Weeky Curve - Table

I went poking around on Thursday evening looking for trades that were executed in VIX options, but appeared to be focused on the pending Non-Farm Payrolls Number that came out this past Friday.  The only thing that popped out at me was a pretty large buyer of VIX Nov 11th 25 Calls for 0.05.  Considering spot VIX was around 15.00 when this buyer was in the market, I think they either expected a truly horrendous employment report, at least with respect to the impact on the equity market or they believe a market calamity is pending this weekend or at least before next Wednesday’s settlement.

What did catch my eye on Thursday was a couple of bull call spreads focused on December.  It’s a bit early to see such trades, but a lightbulb sort of went off Friday morning when I heard the odds of a rate hike in December increased after the release of the employment number.  If this anticipation starts to hang over the equity market as December 16th (which is both standard December VIX settlement in the morning and the FOMC announcement in the afternoon) approaches a rise in VIX is very possible.  Two trades, that both look to the 20’s for VIX, went off late Thursday.  One trader went long the VIX Dec 16th 19 Calls at 1.36 and sold the VIX Dec 16th 29 Calls for 0.37 for a net cost of 0.99.  The payoff at December VIX settlement appears below.


The other trade that looked to a higher VIX in the middle of December purchased the VIX Dec 16th 20 Calls at 1.19 and sold VIX Dec 16th 25 Calls at 0.61 for a net cost of 0.58 and a December payoff settlement that looks like the diagram below.


Volatility Indexes and ETPs Last Week – 11/8/2015

The S&P 500 quietly rose just under 1% last week and VIX worked lower.  Across the board S&P 500 focused volatility indexes dropped with the possibility that any threat of increased volatility in the markets has been pushed out to 2016.  Of course back in August those same indexes dropped as the economic calendar was light and Labor Day was around the corner.  Note what happened on August 21st and August 24th when complacency started setting in.


On the table below note that SKEW remains high as does the VIX of VIX which can be taken as not everyone thinks the markets are done with volatility events in 2015.

VXX Table

In my search for a fun trade to discuss I decided to venture beyond VXX this week.  I scanned the trading activity on Friday for UVXY options.  The trade I came across looks to June of next year with a bearish outlook for UVXY.  Anyone that is familiar with VIX related funds knows the long ones tend to grind lower over time.  What I found was a buyer of the UVXY Jun 17th 20 Puts who then sold an equal number of the UVYX Jun 17th 15 Puts and UVYX Jun 17th 6 Puts.  This trade appears to be have been worked into over the course of the day Friday, but the biggest block involved buying the 20 Puts at 7.76, selling the 15 Puts for 4.42 and then selling the 6 Puts for 0.43 and a net cost of 2.91 per spread and a payoff in mid-June which shows up in the diagram below.


I’ll discuss the payoff at expiration and then my assumption behind how this trade may be handled.  First, this trade works if UVXY settles between down about 33% and 50% at June expiration.  That’s a wide berth, but not necessarily the plan.  I could see a trader taking profits on the short put positions in this spread the next time we have a volatility spike with the result being only the long put position remaining between now and June.

VIX Weeklys Options Average Daily Volume Tops 25,000 in First Month of Trading – By Matt Moran

Average daily volume for the new VIX® Weeklys options was a strong 25,042 contracts in October, the first month of trading for the products. Prior to last month, the VIX options had expirations only once a month, but now with VIX Weeklys options there usually are VIX options expirations in at least the first four weeks.

1 - VIX Weeklys options


A key feature of the new VIX Weeklys options is that they are in the same options chain as the standard-expiration VIX options. This screenshot below from Bloomberg (after the close on November 2) shows that there now are VIX options expirations on Nov. 4, Nov. 11, Nov. 18, and Nov. 24 (in addition, there are VIX options with longer-dated expirations).

2- ViX OMON on Nov 2


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. The closer VIX futures and options are to expiration, the more closely they generally track 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 chart below shows select VIX futures in August. The week 34 VIX Weekly futures settled on the morning of Wednesday, August 26. As noted in the subheading, over a 3-day period the VIX Index rose 167% and the week 34 VIX Weekly futures rose 147% (while the standard-expiration VIX futures had smaller moves).

3 - VIX future in Aug


To learn more about VIX Weeklys futures and options, please visit

First CBOE Risk Management Asia Agenda

Everyone at CBOE is looking forward to the first Asian version of the popular Risk Management Conference to be held November 30 to December 1 in Hong Kong.  Just today the preliminary schedule was just posted at which also works for registering to attend.

Topics to be covered at the conference include volatility oriented trading strategies, option based portfolio management approaches, how to handle risk management in different volatility environments, and volatility oriented strategies implemented by hedge funds.

Below is the current list of speakers scheduled to appear at the conference –

​El Mehdi Benhmade ​
Portfolio Manager, Capula Investment Management

Shane Carroll
Equity Derivatives Strategist, SG Securities, Ltd

William Chan
Equity Derivatives Strategist, Bank of America Merrill Lynch
Christopher Cole
Managing Partner, Artemis Capital Management

Gus Dhothar
Portfolio Manager, Goldman Sachs Investment Management

Tim Edwards
Ph. D., Senior Director of Index Investment Strategy,
S&P Dow Jones Indices

Michael Fagan
Chairman, Levitas Capital

Patrick Fay
Global Head of Derivatives, FTSE Russell

David Friedland
Managing Director, Interactive Brokers

Krag “Buzz” Gregory
Equity Derivatives Strategist, Goldman Sachs

Govert Heijboer
Co-CIO, True Partner Advisor Ltd

Timothy Hendricks
Founder, Managing Partner, X-Change Financial Access, LLC

Satoshi Iwanaga
CEO, Eurekahedge

Benoit Meulot
Portfolio Manager, BTG Pactual

Matthew Moran
Vice President, Institutional Business Development, CBOE

Russell Rhoads, CFA
Director, The Options Institute, CBOE

Steven M. Sears
Senior Editor and Columnist, Barron’s and

William Stephens
Strategist, Deutsche Bank

Edward T. Tilly
Chief Executive Officer, CBOE Holdings, Inc.


Volatility Indexes and ETPs Last Week – 11/1/2015

When I do these blogs I get the data, create the graphics and look at the markets.  I share these mundane facts about my ‘process’ to make a point about the diagram below.  Last week we got an FOMC meeting (although one without a press conference) and GDP number behind us without the stock market did not reacting negatively.  We are looking forward to the October employment report that comes out this Friday, but we did get two of the big three economic events behind us.  That combined with the S&P 500 rising on the week would make one think the volatility curve would have shifted lower, not higher.  However, numbers don’t line and the chart below shows some real concerns about the prospects for the stock market over the next few weeks.


Both SKEW and VVIX also remain elevated, although down on the week, which I take as a sign traders are not expecting to cruise through the end of 2015 without some detours or speed bumps along the way.

VXX Table

The biggest VXX option trade on Friday was also one of the last block trades of the day.  VXX was at 18.82 and a bear call spread was executed using the November 20th options.  The trader sold 6000 of the Nov 20th 17.50 Calls at 1.83 and purchased 6000 Nov 20th 18.50 Calls at 1.43 and a net credit of 0.45.  This trade is looking for three weeks of relative calm in the equity markets to persist and VXX to do as it does in this type of market, which is grind lower.   The payoff if held to November expiration appears below –


VIX Last Week – 11/1/2015

VIX, VIX futures and the S&P 500 all moved higher last week.  It happens, but with a couple of major economic events/numbers behind us (FOMC / 3Q GDP) and stocks moving up (although slightly) it was a bit surprising to see all that green when compiling data for this blog.

VIX with Table

The curve below is a comparison of generic VIX futures based on the number of days to expiration.  For example, Week 1 for the 10/23 curve was the October 28th contract while on the 10/30 curve it represents the November 4th VIX futures.  The shift higher in VIX futures was across the board with the short dated futures moving up as well.

VIX Weeklys with Table

VIX Weeklys futures were launched back in late July with the options following more recently on October 8th.  The first set of VIX Weeklys options settled this past Wednesday and the open interest for the October 28th options was well over 100,000 at settlement.  As of Friday the open interest for VIX Weeklys options expiring this coming week is over 106,000.  The table below shows the top five Nov 4th VIX options ranked by open interest.

VIX Weeklys Nov 4 OI

As I noted above VIX Weeklys futures have been around for almost three months.  The anticipation was that these contracts would closely follow the level of the spot VIX index.  I’ve been compiling five minute VIX data and the bid and offer for the contract that expires in just a few days to see if that the assumption of how the futures were going to behave relative to the index is holding up in the market.  So far the correlation between the index and mid-point of the futures bid-ask has a correlation of around 0.98 using 5 minute data and rolling to the next week’s contract on the close the afternoon before settlement.  If you are more of a visual person check out the chart below which is a comparison of VIX and the futures for the last three months. 5 Min VIX - First 3 Months


RMC Asia To Cover Worldwide Volatility, Options Skew, and Risk Management – by Matt Moran

The CBOE Risk Management Conference is the premier educational forum for users of equity index options and volatility products. Now in its 31st year in the US and 4th year in Europe, CBOE is pleased to bring this experience to Asia. The First Annual CBOE Risk Management Conference Asia will be held on November 30 – December 1 at the JW Marriott Hotel, Pacific Place, 88 Queensway, Hong Kong.


Topics to be covered include –

• Primer on Options and Volatility Strategies
• Benchmark Indexes & Research on Fund Use of Options-Based and Volatility-Based Strategies
• Panel on Options and Volatility Market Structure
• A New Volatility Regime? Navigating the Cycle with S&P 500 and VIX Options
• Volatility Reconnaissance: What can S&P 500 and VIX options tell you?
• The Short Story: The Volatility Risk Premium and strategies to take advantage
• Volatility and the Allegory of the Prisoner’s Dilemma
• ‎Hedge Funds and Volatility-Based Strategies: Presentation and Panel
• Perspectives on Listed Equity Derivatives from Chinese Exchange Leaders
• Cross-Region Volatility Analysis for Investing and Hedging
• Directional Options Strategies
• Volatility of Volatility


Many experts on volatility and options investing will attend RMC Asia. Five questions that I would like to see addressed at RMC Asia are in the all-caps headings below.

I have been told that the options volatility skew generally is different in the U.S. and Asia. The two charts below show the volatility skew for select index and ETF options. For five of the six options (all except VIX options), the estimated implied volatility at 80% moneyness (corresponding to 20% O-T-M put options) is the highest for any strike price shown. One could infer from this chart that there is great demand for index options that can protect against huge downside losses. At RMC Asia I plan to learn more about comparisons of the volatility skew in the U.S. and Asia.

1 - Vol Skew SPX etc2 - Vol Skew VIX USO

Money managers who consistently write index options often note that there has been a volatility risk premium for index options, i.e., the implied volatility usually has been higher than the realized volatility for the S&P 500 for at least the past two decades, and investors who sell richly priced options often have a goal of generating relatively string risk-adjusted returns. For more on these points, you can click on the 30-page PDF for a presentation by Keith Black and Edward Szado. Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs (Jan. 2015).

Below are two charts with comparisons of volatility indexes (the VIX Index for the U.S. and the VHSI for Hong Kong) and the 30-trading-day historic volatility of key stock indexes.

3 - VIX & Hist Vola

4 - Hon Kong Ex Hist Vola

At RMC Asia I plan to learn more about the interrelationship between volatility and volatility of volatility. On December 1st at RMC Asia William Chan and Michael Fagan will cover topics such as –
– Historical observations and interpretations for “vol-of-vol” surfaces
– Trading and hedging applications depending on client objectives
– A case study approach

In the index chart below, I show four volatility indexes – VVIX, OVX, VXFXI, and VIX. The VVIX Index hit a peak daily closing value of 168.75 on August 24, 2015, and the VVIX can be a helpful barometer to investors who are trading VIX options.

5- VVIX & 3 vol indexes


In July CBOE introduced ten new strategy benchmark indexes (e.g., the BXMD and CMBO indexes), and I look forward to discussing the performance of the indexes with the attendees.

6 - benchmark indexes

‎Christopher Cole, Managing Partner, Artemis Capital Management, will provide some answers to this last intriguing question.


On Twitter RMC updates are available at #CBOERMC.

Much more information on RMC Asia is available at

VIX Last Week – 10/18/2015

It has been a while since I’ve started out saying we had a parallel shift in the VIX curve.  That’s what we got last week as the market calmed down a bit and the S&P 500 advanced.  The October contract settles on the open this coming Wednesday and went out at about a point premium to spot VIX which has been the norm over the past few years when VIX has been in the mid to low teens.

VIX Table

The short dated curve shifted a little more into contango last week.  It is still relatively early in the game to make a decision of what is normal for the short term curve and the excess volatility as of late hasn’t given many examples.  My guess when I knew VIX Weeklys were on the horizon was that the short term curve would resemble the two lines below.

VIX ST Table

Mid-day on Friday, with VIX at 16.00, one of my favorite VIX option spread trades was executed in the pit. The trader sold 14,000 VIX Nov 15 Puts for 0.47, purchased 14,000 VIX Nov 23 Calls at 0.92 and rounded things out by selling 14,000 VIX Nov 28 Calls at 0.57.  The net result was a payoff at November expiration that appears like the diagram below and a net credit of 0.12.


Volatility Indexes and ETPs Last Week – 10/18/2015

VIX closed under 16.00 for the first time since all the hubbub that occurred in late August as the S&P 500 continued to recover last week gaining 0.90%.  Among the four S&P 500 focused volatility Indexes VIX was the biggest loser shedding almost 12%.  I had been keeping a close eye on VXV as the 3 month time frame that VXV measures comes after the December FOMC announcement.  VXV fell a bit relative to VXMT (6 month volatility) which may be a FOMC indicator and may also be attributed to VXV’s time frame pushing to January, when the final Fed meeting of 2015 will be safely in the rear view mirror.


Two things stand out on the table below, VVIX and SKEW.  Despite the drop in VIX, the VIX of VIX (VVIX) rose last week to 97.58, which indicates demand abounds for VIX options despite or maybe because of the recent drop in VIX.  I say because of the drop in VIX since some traders may see this as an opportunity to get relatively cheap tail risk protection.

SKEW has been closing at record levels as of late which shows that concern regarding outlier moves to the downside persist despite the S&P 500 marching higher.  When SKEW is at elevated levels this means out of the money SPX puts are ‘rich’ compared to puts with strike prices closer to the S&P 500 which in layman’s terms means demand for protection against a large drop in the S&P 500 is still high.

VXX Table

I came across sort of an unusual VXX spread trade mid-day Friday.  With VXX around 19.90 there was a buyer of the VXX Oct 30th 23 Calls who paid 0.48 a contract and also decided it was a good idea to sell an equal number of VXX Oct 23rd 22 Calls for 0.32 resulting in a net cost of 0.16 for the diagonal spread trade.  A quick glance at a calendar of economic events may shed some light on the thinking behind this trade.  The position is short VXX calls that expire in a week and the economic calendar next week appears fairly light.  Looking to the week that ends October 30th, we have two of the big three economic announcements – an FOMC meeting and 3rd quarter GDP.  It could be one trader is betting on calm next week before a storm the following week.

VIX Last Week – 10/11/2015

A return to normalcy occurred last week with the 18% drop in VIX and 3.26% rally in the S&P 500.   Even the seasonal December pattern moderated a bit and we have a textbook contango curve for the first time since August.

VIX Curve Table

Read More »


  • Recent Comments

  • Tags