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, 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 for information on more speakers, topics, updates, and details re: travel and registration.

VIX Last Week – 6/15/2014

VIX rebounded nicely last week mostly based on weakness in the stock market on Thursday.   Despite a 13% rise, VIX is still hovering around very low levels with a 12 handle to finish the week.   If I had been away from the markets for a month and saw VIX at 12.18 on a Friday my assumption would be that the S&P 500 was up a percent or more that week, not lower by 0.7%.



The June contract finished the week at 12.95 which has a little risk premium built in for the last two trading days before settlement.   The curve is pretty tame considering what we saw in the oil market last week. Eventually higher oil prices, at least those that are the result of crisis and not economic growth, tend to work into lower stock prices and by default higher SPX volatility. So far the stock market is ignoring the quick move up in oil prices from last week. Of course we have been desensitized to small market moves that in the past have been worrisome whether it is a drop in gold, spike in oil, or small setback in the stock market.


Volatility Indexes and ETPs Last Week – 6/15/2014

The S&P 500 had a slight setback of a week with the result being a heck of a rebound in VXST and VIX, at least on a percentage basis. Of course both VXST and VIX rebounded off of what can be mildly referred to as a low base price and in the words of one smart volatility trader, “They only had one direction to go”.



The long VIX related ETNs got a nice boost from the VIX rebound with the non-leveraged long ETNs gaining about 5%. This coming week is June VIX expiration so Monday VXX traders should know that just over 90% of the fund is based on July VIX futures performance. By this time next week August VIX futures will be in the mix.   It seems strange to be talking about August when the summer just started.

Indexes Options

There was a trade that caught my eye on Thursday in VXX options. Taking a somewhat long term bearish VIX on VXX a trader came in and bought 15,000 of the VXX Jan 2015 20 Puts for 0.75. VXX closed at 32.37 on Thursday and I was prompted to perform some back of the envelop calculations on VXX performance and this trade.

We all know that since inception VXX drops an average of about 1.5% per week. If you didn’t know it you do now.   So I took Thursday’s close and determined where VXX would be on January 19, 2015 if every week were an average week (in very rough numbers). The result was VXX at about 20.25. Whoever took on this position is expecting VIX to stay low for the remainder of 2014 and into 2015. I have a note in my 2015 calendar to check the result on the third Friday of January 2015.

VXST Last Week – 6/15/2014

VXST gained over 24% last week coming off a low price (the lowest ever actually) from last Friday. As seen below a big portion of this gain came from Thursday last week when the S&P 500 was down 0.7% and also put up the third losing day in a row. I guess the three day losing streak is the sort of thing that starts to get the attention of traders.



The VXST futures curve has a little bit of an unusual shape and I’m planning on checking that July 2 futures price when I get back in the office Monday morning.   I could understand there being a wide premium between the July 9 and July 2 contract prices as July 2 settlement will be based on options that have some slow days and days off in the mix along with the employment number being scheduled for July 3, but the price difference appear to be a bit extreme.


Trading interest in the VXST option space continues to grow with open interest at about 3,000 contracts as of Friday.   The highest interest for options expiring this Wednesday include the VXST Jun 18th 10.50 Puts (300), VXST Jun 18th 11.50 Calls (120), VXST Jun 18th 12.50 Calls (300), VXST Jun 18th 13.00 Calls (195), VXST Jun 18th 18.00 Calls (558), and VXST Jun 18th 20.00 Calls (500).

Oil and Gold Volatility Last Week – 6/15/2014

Everyone has been asking about volatility (or lack thereof) in 2014. It has kept me busy explaining why implied volatility in the stock market has been relatively low this year and how it has been justified. However, for those looking for volatility you need not look much further than the chart below. With the political landscape quickly changing in Iraq the price of oil has broken out to the upside and so has the CBOE Crude Oil ETF Volatility Index (OVX – 19.47) which was up about 35% this past week as oil futures climbed over 107 on Thursday last week. The situation over there is developing and this just may be the beginning of an interesting summer for energy traders.



Gold on the other hand is the calmer of these two markets. Based on the SPDR Gold Shares ETF (122.96) price action it appears a new support level is developing around 120.00. Range bound markets have very little historical volatility and that can result in low implied volatility. GVZ is already indicating a range bound market for GLD over the next few weeks. Although we do know from history and related markets (see above) that the situation can change very quickly.


Both June OVX and GVZ futures and options settle on the open Wednesday morning. With only two trading days remaining until expiration the June OVX contract closed Friday in line with the underlying index and it could be an interesting couple of days going into settlement.   Also, I checked the options and there is some open interest in the 18 and 19 puts that expire on Wednesday. Someone may be hoping for a dip in OVX this coming week. The June GVZ contract went out at a pretty hefty premium relative to the index. Across the board June settlement is shaping up to be something to keep an eye on.


Nasdaq-100 and Russell 2000 Volatility Last Week – 6/15/2014

Despite being down on the week the Russell 2000 closed the gap with the S&P 500 and Nasdaq-100 for 2014 last week. The RUT dropped a little less than a quarter of a percent and the result of this drop combined with volatility being at a low level was a gain of about 5.5% in RVX for the week. Much has been made in 2014 about the spread between RVX and VIX – the spread on Friday was just a little under 6 which is becoming the norm this year.



The Nasdaq-100 dropped right at one-half a percent last week and despite dropping more than the Russell 2000 NDX volatility didn’t climb quite as much as RVX. VXN was 3% higher and stayed in a pretty narrow range for the week.


The curves shifted in unison with the move higher in their respective indexes. I was surprised to see the June RVX settlement price on Friday at only a 0.61 premium to the index with just a couple of days left until June futures go off the board.


Emerging Market Volatility Last Week – 6/15/2014

The World Cup started this past week as Brazil continued to dominate their rival Croatia with a 3 to 1 victory in Sao Paulo. I’m not 100% sure if there is a link here, but Brazilian stocks also rallied almost 3% last week as measured by the iShares Brazil Capped ETF (EWZ – 49.64). I believe one of the big investment banks predicted a 3% move up in stocks if Brazil won the World Cup. Maybe this past week’s move was an endorsement of Brazil’s chances to bring home (I guess keep at home) the cup. Despite the rally in stocks, VXEWZ ticked up slightly last week, which can be partially attributed to US market volatility moving up as well.



Despite the strong market in Brazil the iShares Emerging Markets ETF (EEM – 43.61) was basically unchanged on the week. And volatility was slightly higher. We can point to a low VXEEM and again US implied volatility moving up a bit as having an influence on this move.


The term structure curves followed the lead of the respective indexes and didn’t display much movement. The front month futures (with 2 trading days remaining until expiration) narrowed the gap between the indexes with the Jun VXEEM future unchanged and VXEWZ contract losing a little value. I continue to be fascinated at the premium that exists on Fridays before expiration. Before this statement prompts tweets and emails I am very aware of the Friday effect on volatility indexes, but I do not think that attributes to the all of the premium. I believe my summer intern should be prepared Monday for a project involving the last few days of trading for VXEEM and VXEWZ futures relative to the index.



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