Weekend Review – VIX Futures and Options – 6/19/2016

I’ve been around long enough to remember when the time in the markets between Memorial Day and Labor Day were quiet enough for traders to spend several afternoons at Wrigley field without feeling they were missing anything. This past week no one could have gotten away with playing hooky.

As the stock market came under pressure, VIX climbed to the highest levels we have seen since February. Everyone is focused on Brexit as the ‘reason’ for the markets to be doing what they are doing. I’m going to use that excuse for a couple of things in this blog as well. First, note the curve is basically in contango despite VIX being at relatively high levels. I believe, if it weren’t for the big vote next week, that either VIX would be lower or if VIX were this close to 20.00 the July contract (which doesn’t expire until July 20th) would be at a discount to spot VIX.

VIX Curve table

I noted in a tweet that for the first time in four years more VIX put options than call options traded for two consecutive days (Thursday and Friday). My initial impression was that this must be a sign traders are prepping for a volatility crush after the Brexit vote or at least lower VIX over the next few weeks. Well, I may have jumped the gun without all the information. The picture below shows a breakdown of today’s VIX option trading.

VIX Stats

Note what I highlighted above, a good portion of the VIX put volume today was on the bid side. This usually indicates public orders being more sell oriented than buy oriented. If puts were being sold, it would be with the expectation of higher volatility. Also, VVIX has been very high of late, closing Friday at 115.72 which is on the historically high end and may have steered volatility bulls toward selling puts instead of buying calls.

Finally, a little more on Brexit. I took a snapshot from the LiveVol platform at the end of the day and cut out the skew chart for all the available VIX option series. Note the highest line below represents the June 29th VIX options which is the first expiration post-Brexit.

End of Day Skew

At this time, it appears the Brexit versus Bremain vote is going to come down to the wire. We know the vote is going to happen we just don’t know the probable outcome and don’t know how the market will react. With that much uncertainty we have high VIX, high VIX futures pricing, and high skew for the June 29th VIX options.

Weekend Review – Volatility Indexes and ETPs – 6/19/2016

The VXST – VIX – VXV – VXMT curve moved from contango to an unusual shape this past week. Lots of things point to the markets being concerned about next week’s ‘should I stay or should I go’ vote in Britain. VXST represents short term SPX option volatility and the options that expire just after the vote are feeding that calculation.  I’m going to say results in VXST finishing the week at such an elevated level last week have a little to do with Brexit.


With the big move up in volatility last week, VXX and UVXY both had a good time respectively rising about 8% and 15%. On the flip side of the equation SVXY gave up most of the 2016 gains losing about 10%. I also would like to highlight TYVIX which closed much higher, even though the Fed announcement is behind us. I guess this vote is causing concern across all financial markets. Finally, I would be remiss without noting that VVIX finished the week just over 115.

VXX Table

As mentioned, SVXY took it on the chin last week, but is still slightly in the green for 2016. Both VXX and UVXY had good weeks, but need a few more good weeks just to get back to even on the year.


One trader appears to be looking for volatility to move lower next week and expressed this opinion through selling a put spread on SVXY. Remember SVXY is the inverse of VXX on a daily basis so if VIX futures move lower next week then SVXY will benefit. With SVXY at 52.05 the trader sold the SVXY Jun 24th 44.50 Put for 1.01 and then purchased the SVXY 39.00 Put for 0.46 and a net credit of 0.55.


Note the short strike in this put spread is down about 17% from where SVXY was trading when the spread was initiated. Seeing that got me to do some digging. SVXY has been around since 2011 and we have 245 weekly observations. Of those 245 weeks, only 9 weeks have experienced a drop of 17% or more. Taking things a step further I decided to check into how often SVXY has lost enough value to hit the long strike on this put spread. That would involve a drop of about 33% and it has never happened (not saying it can’t, it just hasn’t) as the biggest one week drop for SVXY since inception is just under 26%.

Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran

Below are updates on (1) VIX futures, (2) SPXW Wednesday-Expiring Weekly options, and (3) the BPVIX Index.

(1.) RECORD OPEN INTEREST. Futures on the CBOE Volatility Index® (VIX®), which launched in 2004, experienced some milestones regarding open interest in recent days –

  • VIX futures open interest surpassed 500,000 for the first time on June 6;
  • VIX Futures open interest hit a new all-time record high of 501,835 on June 7. www.cboe.com/VIX.

1 - VIX futuresrecord open interest

(2.)  RECORD VOLUME. On February 23, 2016, CBOE launched trading of weekly options on the S&P 500® Index which expire on Wednesdays. The average daily volume for SPXW Wednesday-Expiring Weekly options grew to a record 74,114 in May, and then to 105,768 so far this month (through June 14).  www.cboe.com/SPXW.

1 - Wed Exp Weekly volume

CBOE’s February press release noted –

“We are pleased to further expand our SPX product complex with the introduction of SPX Weeklys with Wednesday expirations,” said CBOE Holdings CEO Edward T. Tilly. “Wednesday Weeklys, in addition to end-of-the-week expirations, will increase opportunities to trade SPX and enable investors to better target specific expirations. Wednesday Weeklys will align with VIX Weeklys futures and options, which also expire on Wednesdays, to provide greater trading flexibility for the increasing number of customers who use both our SPX and VIX product suites.”


The CBOE/CME FX British Pound Volatility Index (BPVIX) rose around 322% year-to-date (through June 16). Much of the rise in the index has been attributed to anxiety re the possible impact of the Brexit in/out referendum on June 23.

3 - Volatility indexes BPVIX VIX

For more information on volatility indexes, and on VIX futures and options, please visit www.cboe.com/volatility.

Bullish VIX Block Trade

June VIX futures and options settle Wednesday on the open so we are starting to see traders look ahead to July standard expiration. Of course those that want to be more strategic can explore the VIX Weeklys, but that is an argument for another blog.

Thursday morning, exactly an hour into the trading day there was a buyer of 8,500 VIX Jul 17 Calls at 1.99 who then sold 17,000 VIX Jul 21 Calls for 1.03 each and a net credit of 0.07 per spread. The result is a small credit and a payoff at July expiration that looks like the diagram below.


As highlighted on the chart VIX was at 14.71 and the July futures were trading at 17.20 when this trade was executed. Odds are a spike in VIX over the next few weeks would result in our trader getting out of the spread with some sort of profit or altering the composition on the trade. However, if held to expiration all is well all the way up to just above 25.00 (25.07 to be exact) with a best case scenario of VIX settlement at exactly 21.00.

Weekend Review – VIX Futures and Options – 6/12/2016

June VIX settlement is on the horizon, just two trading days and an overnight to Wednesday’s AM settlement. I mention that as a lead off in this space as I find the June futures at a premium to spot VIX kind of interesting considering VIX rose 26% last week. Admittedly, a 0.50 premium isn’t all that much, but any premium at all makes me think traders are still on edge after the S&P 500 price action last week and now going into two weeks with big known unknowns (FOMC this week and Brexit the following week).

VIX Table Graph

I’m going to deviate a bit from my normal pattern in this space and discuss the VIX of VIX (VVIX). As the name implies VVIX is a measure of the expected volatility of the 30-day forward price of VIX. VVIX finished last week at 103.78, closing over 100.00 for the first time since February.

VVIX Daily 2016

To give a little perspective on VVIX I updated the chart below through Friday’s close. This shows the high – low range along with the yearly average for VVIX beginning in 2007. We usually consider anything below 80.00 as low for VVIX and over 100.00 as high. I look at VVIX finishing over 100.00 on Friday as another indication that the markets are bracing for extra volatility over the next few weeks.

VVIX Range by Year

Finally, on Friday I came across a trade that would benefit from a move to the low 20’s for VIX. Looking out to July expiration (July 20th)  someone came in and purchased 11,600 VIX Jul 18 Calls at 2.01 and then sold 23,200 VIX Jul 22 Calls for 1.13 and a net credit of 0.25. The payoff at July expiration shows up below along with where VIX and the July VIX futures were trading when this ratio spread was executed.


The payoff above is based on July expiration, but I’m fairly certain if VIX runs to the 20’s there will be some profit taking. I’ll do my best to keep an eye on the 18 and 22 Calls and report back if I come across any profit taking.

Weekend Review – Volatility Indexes and ETPs – 6/12/2016

Last week VIX rose every day which isn’t all that unusual.   What was ground breaking was that VIX rose each of the first three days last week despite the S&P 500 moving up as well. I decided to take a look at what has happened in the past when both the S&P 500 and VIX rise together for three consecutive days. The result, it’s not as uncommon as I thought, we’ve had 17 occurrences of three up together.  However, the last time was in January 2013.


VVIX has remained fairly high for most of 2016 even when VIX moved lower. Based on last week’s action it moved over 100 as demand for VIX calls increased.   The long ETPs had a nice week with VXX up over 10% and UVXY 20%.

VXX Table

Despite the good week, VXX and UVXY are still down dramatically for the year. SVXY gave up about half of the 2016 gains is now up only 14.5% for the year after being up as much as 30%.


At least on trader got a jump on Friday afternoon’s move higher in volatility. They also appear to expect some follow through next week. About 15 minutes into the trading day, with VXX at 13.89, someone purchased 3,000 VXX Jun 17th 16 Calls for 0.15 and sold 3,000 VXX Jun 17th 21 Calls for 0.04 and a net cost of 0.11.


If the trade is held to expiration and VXX is anywhere over 16.11 then the result is a profit. The maximum loss is 0.11 and a week for the record books which places VXX at or above 21.00 would turn that 0.11 investment into a profit of 4.89. I should note that the trade could be exited on the close at 0.16 for a 0.05 profit, but I can tell by the trading activity that this trade is still open. At least they are off to a good start.

BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options

On Monday the CBOE/CME FX British Pound Volatility Index (BPVIX) closed at 22.59, its highest daily close since March 2009, and the BPVIX Index has risen 161.8% so far this year (through June 6). A number of news articles have noted that the implied volatility for British Pound has risen during the past month because of concern about the upcoming June 23 Brexit referendum.

1 Vola indexes Three

Recent headlines for news stories included (1) “Pound Falls, Volatility Jumps as Polls Show Momentum for Brexit” (Bloomberg on June 5), and (2) “Sterling volatility heads higher as Leave camp builds lead” (Financial Times on June 6). In addition, Timothy Edwards posted a VIX Views blog on “Divining Brexit.”

The BPVIX Index is not tradable and there are no BPVIX listed futures or options. As the vote on Brexit approaches, traders and investors could keep an eye on the volatility skew and term structure for key listed options.


Listed options are available on the CurrencyShares British Pound Sterling Trust (FXB). The FXB delivers exposure to changes in value of the British pound relative to the US dollar. At the end of last month the open interest for the FXB ETF options was 30,874 for the FXB put options, and 8,649 for FXB call options. The next chart below shows the volatility skew for the FXB options at the close on June 6 (when the FXB closed at 141.43). Note that the implied volatility for the out-of-the-money (OTM) FXB put options generally is much higher than the implied volatility for the OTM FXB call options, indicating high investor fear about possible future downside moves of the FXB.

2 FXB Skew

The two charts below show Bloomberg estimates of 30-trading-day impled volatility for five option classes. Note that for all the options classes (except VIX) in the charts below, the implied volatility at 90% moneyness is higher than the at-the-money (ATM) implied volatility, while the implied volatility for VIX at 110% moneyness is higher than the VIX ATM implied volatility.

4 - Skew US

A valuable tool to see long-term trends in SPX skew and investors’ concerns about catastrophic risk is the CBOE SKEW Index at www.cboe.com/SKEW.


CBOE offers SPX Weeklys that expire on Wednesdays and Fridays, and VIX Weeklys that expire on Wednesdays. Weeklys options can provide opportunities for investors to implement more targeted buying, selling or spreading strategies. Weeklys options can help investors efficiently take advantage of market events, such as earnings, government reports, voter elections and referenda, and Fed announcements.

A May 29 Business Insider post noted that Goldman Sachs options analysts issued a report that considers the messages volatility term structure is sending. The Business Insider post stated that —

Looking at the S&P 500 implied volatility term structure, a downward hook, or “kink” as the Goldman report says, is noticed just before the June 14-15 Fed meeting. Looking at term structure, markets are pricing in volatility around the June 23rd Brexit vote, but not necessarily the June 14-15 Fed meeting nor the U.S. Presidential election. “Elevated event risk creates “kinks” in term structures,” Gregory and Timcenko wrote. “The term structure of implied volatility is typically smooth and upward sloping. Excess hedging demand around specific expirations creates kinks in the term structure and provides clues as to how event risk is being priced.”

Below are CBOE-created term structure charts with Bloomberg estimates for select dates for OTM SPX puts and VIX calls at certain strike prices. With the Brexit vote scheduled for Thursday, June 23, it will be interesting to see how implied volatility moves around that date for the key index options. You can see the term structure for many more SPX standard expiration dates at www.cboe.com/VIXTerm.

5 - Term structure

Weekend Review – Volatility Indexes and ETPs – 6/5/2016

The whole curve shifted a bit higher last week. We have to attribute the rise to the three-day weekend effect. At least in the case of VXST and VIX. Typically, VXV and VXMT are not impacted as much as the shorter dated volatility indexes. I might attribute the rise of longer dated volatility to the expected date for the next rate hike being pushed down the road.


Despite the rise in VIX last week, the long volatility oriented ETPs were lower on the week. This is a function of the futures dropping as well.

VXX Table

SVXY has recovered nicely from the February lows and is now up over 27% for 2016. UVXY which was up over 100% for the year is now down over 64%.


With volatility up a bit on Friday morning someone came in looking for a long term grind lower in VXX. At least they expect VXX to work lower over the course of summer into standard September expiration. With VXX at 13.53 they purchased the VXX Sep 16th 12 Puts for 1.13 and then sold the VXX Sep 16th 10 Puts for 0.31 and a net cost of 0.82. If VXX is below 10.00 on the third Friday of September, the result would be a profit of 1.18. If VIX remains low for the summer VXX under 10.00 in three months is definitely a possibility. In fact, with VXX closing at 13.02 the execution of this trade appears to be well timed.


Weekend Review – VIX Futures and Options – 6/5/2016

The S&P 500 was slightly higher last week and so was VIX, but we put an asterisk next to that number based on the three-day holiday weekend. The futures tell more of the story and as you can see below as with the exception of the February 2017 contract all the futures moved lower.

VIX Curve Table

Friday morning the stock market was weak and VIX was higher in reaction to the employment numbers. With VIX at 13.93 and the Jun VIX futures contract at 15.10 someone came in and bought 2500 of the VIX Jun 15th 16 Puts for 1.40. If held to expiration this is a bet that June VIX settlement will be well below 14.60. By the end of the day on Friday this trade was looking pretty smart as VIX finished the week at 13.47 and the June standard futures contract settled at 14.725 which resulted in the bid side for the VIX Jun 15th 16 Puts to close at 1.55 for a small unrealized profit.


Divining Brexit

The markets’ view of the pending British referendum on EU membership displays the hallmarks of a low probability, high impact event.  Correlations, and volatility expectations, are the key indicators.

When macroeconomic risk is dominant, as a select few narratives come to preoccupy investors, correlations increase.  For example, in August and September 2015, markets worldwide were roiled in concert: on the changing winds of a collapsing oil price, and a loud “pop” in Chinese equity prices, correlations achieved multi-year highs.

The chart below shows the average monthly correlation among the constituents of the S&P United Kingdom index:

Pic 11

Compared to recent levels, and to longer-term averages, UK equity correlations remain reassuringly low.  This tells us that Brexit risk is not currently a major driver of equity pricing. 

But British equities include a number of global standard-bearers with disperse operations such as BP, Unilever and HSBC.  Conversely, the pound sterling has far more direct sensitivity to specifically British trade opportunities, economic growth and sovereign credit.  We can also assess Brexit risk with the CBOE/CME FX Pound Sterling Volatility Index, a measure of the expected movement implied by options on the pound / U.S. dollar exchange rate.

The pound’s volatility gauge is warning of considerable trouble ahead.  The index currently stands at 21.7, having more than doubled in the last few weeks – to its highest level since February 2009.

Pic 12

Note that the current spike in the chart began just as the June 23rd referendum date moved within the 30-day range measured by the volatility index.  Currency volatility shows investors’ Brexit fears.

How can we reconcile these two indicators?  Is the market unconcerned with Brexit, as equity correlations indicate?  Or should we infer, as currency markets seem to be doing, an impending disruption on a level not experienced since the financial crisis?

Correlations tell us when events have come to dominate, implied volatility indicates the magnitude of misfortunes which may never happen.  The key is to appreciate that Brexit is a low probability, high impact event.  The low probability means that minor swings in polling have had little impact on the day-to-day fluctuations in the British equity markets.  Meanwhile, the high impact is shown by the greatly increased cost of insuring against the possible disruption that a vote for “leave” might entail.


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