Demand for Disaster Protection Increases as CBOE SKEW Index Hits a Six-Month High – By Matt Moran

JAN. 18, 2017 – Today the CBOE SKEW Index (SKEW) closed at 143.43, its highest value since June 2016. 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 tail risk of S&P 500 returns. If there were no tail risk expectations, SKEW would be equal to 100.

SKEW Jan 18

The FAQ on the 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.”


The average value of SKEW (since the beginning of its data history in 1990) has been 118.4. Prior to 2014, the highest average daily closing value in a year for the SKEW Index was 122.5, but in each of the years 2014, 2015, 2016, and year-to-date 2017, the average daily closing level for the SKEW Index was 127.5 or higher.

 SKEW since 1990 through Jan 18


For investors who wish to learn more about hypothetical long-term performance of strategies that use index options, CBOE provides more than 30 strategy benchmark indexes. Note in the two charts below that the left tail risk was higher for the S&P 500 Index than it was for two indexes that use SPX put options – the CBOE S&P 500 PutWrite Index (PUT) sells cash-secured SPX options, while the CBOE S&P 500 5% Put Protection Index (PPUT) buys out-of-the-money protective put options on the SPX Index.

3 - PUT Histogram

4 - PPUT Histogram


For more information on skew and use of options for protection and income, please visit and

Weekend Review – VIX Options and Futures – 1/15/2017

Last week VIX managed to finish the day below the 2016 closing low (11.27) twice.  If it were only Friday’s close I’d throw an asterisk in there for the three-day weekend effect, but there’s no holiday excuse for the Wednesday close of 11.26.

This past week they (whoever ‘they’ are) couldn’t get enough of February VIX Calls.  On Friday, paper bought over 60,000 VIX Feb 21 Calls for 0.49.  On Thursday, there were three block trades of over 20,000 contracts each in the VIX Feb 22 Calls paying 0.48 or 0.49.  Wednesday morning there was a purchase of 98,228 VIX Feb 22 Calls for 0.47 and on Tuesday there was a block purchase of 99,400 VIX Feb 21 Calls at 0.48.  On Monday, there wasn’t any huge action in those two strikes.  At minimum it appears one or more big traders scooped up over 150,000 of the Feb 21 and 22 Calls last week.  One side effect of this demand for VIX calls is a rise in VVIX which gained over 10 points last week, despite the drop in VIX or maybe because of the low level of spot VIX.

This sort of divergence showed up a few times last year, where VVIX started to move up and then VIX followed a short time later.  We will see if this pattern is repeated over the next couple of weeks.

Weekend Review – Volatility Indexes and ETPs – 1/15/2017

There are two lines below although it may appear that there is only a purple line for parts of the VXST – VIX – VXV – VXMT curve.  In a round about way I’m saying not a lot happened in the world of S&P 500 option volatility last week.

What really stands out on the table below is the price action of VVIX which rose over 12 points to finish the week over 90.  There were large buyers of February VIX call options last week which contributed to the rise in VVIX.

With VIX being under pressure and the futures falling this year, VXX and UVXY have lost pressure and SVXY has worked higher.

Along with VIX, most volatility indexes have lost value this year and moved lower last week.  VVIX is on exception and BPVIX is another as Brexit looms over the Pound.  Also, note the next three are individual stock volatility indexes which are rising in anticipation of earnings announcements.

As noted above, the first two weeks of 2017 have not been kind to VXX.  I decided to see if any VXX option traders benefitted from the great volatility crush of 2017.   Back on December 30th of last year, like that is really a long time ago, there was a buyer of 300 of the VXX Jan 13th 25.50 Puts for 1.29.  The open interest has remained at steady levels so it is safe to assume this trader held the position through this past Friday.  VXX finished the week at 21.45 placing the VXX Jan 13th 25.50 Puts 4.05 in the money and a profit of 2.76.

Weekend Review – VIX Options and Futures – 1/8/2017

With the stock market kicking off 2017 on a bullish note VIX tested the 2016 closing low finishing the week 0.05 above last year’s low of 11.27.  The futures followed suit, especially the January contract which goes off the board two days before the 45th man to ascend to the presidency does so on January 20th.

I was checking in on the Weekly VIX futures and options activity last week and came across an interesting set of numbers.  The chart below highlights the at-the-money implied volatility for VIX options expiring each week through February 15th.  I found the two ‘bumps’ to the upside interesting with respect to known unknowns on the horizon.  Note the first move higher occurs between the January 18th and January 25th contracts which expire just before and after inauguration day.  The next step up occurs between February 1st and the 8th.  The next FOMC announcement occurs the afternoon of the 1st which is just hours after Feb 1 VIX futures and options expire and the next monthly employment number comes out on the 3rd.

Mid-day on Friday VIX was looking like it wanted to finish the week with a 10 handle.  Two traders came in and took advantage of the very low VIX (11.08 at the time) and purchased two call spreads using standard January options.  The first trade involved a purchase of the VIX Jan 18th 13.50 Calls for 0.43 and selling the VIX Jan 15.00 Calls at 0.23 for a net cost of 0.20.  A few minutes later there was a purchase of the VIX Jan 18th 15.00 Calls at 0.23 which was matched up with a sale of the VIX Jan 18th 17 Calls for 0.12 or a net cost of 0.11.  The payoff diagram below shows outcomes for each trade if held through settlement on the morning of the 18th.  The 13.50 / 15.00 spread appears in blue while the 15.00 / 17.00 spread shows up as the red line.


Weekend Review – Volatility Indexes and ETPs – 1/8/2017

S&P 500 implied volatility was lower across all four time periods that are measured by CBOE Volatility Indexes last week.  VXST finished the week at 9.19 which is actually a tad higher than the low for 2016.  VIX also finished near the 2016 low of 11.27 but finished 0.05 above that level.  As a Trump presidency looms over the markets, with all the rhetoric and fear of what this means for the world, it’s a bit amazing market volatility is so low.

The table below shows volatility under pressure in all places except bonds as TYVIX gained 4.44% which also made it the biggest gainer among volatility indexes quoted by CBOE last week.

We got a reset on the VXX – SVXY – UVXY performance chart, but with volatility remaining low all week SVXY already has a 40% lead on UVXY after just four trading days.

Even through there were a lot of red numbers associated with volatility last week, I was able to find a bullish VXX trade from Friday.  With VXX at 21.97 there was a buyer of the VXX Jan 20th VXX 23.00 Calls who then sold the VXX Jan 20th 24.50 Calls for 0.28 and a net cost of 0.24.  The payout if we get a resurgence of volatility and VXX over 24.50 on the close in two weeks is 1.26.

Five Volatility Market Lessons from 2016

To be successful in any field we all need to keep learning.  My job involves staying on top of all things index and volatility related which means I am always gaining new insights about the markets.  Looking back at 2016, VIX settled into lower levels after starting the year hitting the mid-20’s as the stock market sold off.  Despite the relatively tame behavior from VIX, there were some lessons to be learned last year.

Number 1 – Non-Fundamental Volatility Spikes

Before joining CBOE I was on the buy side with a variety of firms, mostly hedge funds.  I was fortunate to work for some wonderful mentors.  One of my first lessons was that when there’s government action that causes the markets to sell off it is often a buying opportunity.  This early lesson came before volatility was a tradeable asset, but it may be applied just as easily though selling volatility.  We are all aware of the volatility spike associated with Brexit as well as the overnight action that occurred with the election of Donald Trump to the Presidency.  The chart below shows the overnight action for the front month VIX futures and S&P 500 futures.



Number 2 – Currency Volatility is Not Dead

The table below shows the average of several volatility indexes in 2015 and 2016.  Note at the top of the list are volatility indexes based on expected price action for the British Pound (no surprise) and Japanese Yen.  I think singled digit volatility bores many traders, so with the sudden increase for IV on the Pound and Yen may result in those markets getting a bit more attention in 2016.



Before moving on, I did want to highlight the long-term history for BPVIX.  The chart below shows the high / low / average for BPVIX going back to 2007.  Note we’ve had higher levels of IV for the Pound in the past and not just in 2008.  It is very possible the higher IV may be here to stay for a while.



I know on the table above the EuroCurrency was at the low end as it was much higher in 2015.  I wanted to show that IV on EuroCurrency options can reach higher levels as well by showing a 10 year history below.



Number 3 – You Can Make Money Buying VXX

This one will probably get me some hate email, but that’s what the delete button is for.  VXX is more of a trading vehicle than a buy and hold asset.  Admittedly if you bought VXX on the last day of 2015, put it in your pocket and held it through last Friday you would be unhappy with your performance.  However, if you had been a perfect trader and exited at the 2016 high you would have turned a 48% profit.  Also, as highlighted on the chart below, an overnight position on Brexit night would have resulted in a one day return of about 24%.



Number 4 – SVXY Can Be A Better Buy Than SPX

A couple of years ago, I was speaking to a CFA chapter about buying SVXY when there is a sell-off in the stock market.  This was offered up as an alternative to buying the SPY ETF.  I got a question as to why a portfolio manager would choose to buy SVXY when they could just purchase SPY.  My response was if the stock market did not rebound, SVXY would most likely benefit from VIX and (more specifically) VIX futures moving lower.  I decided to see how SVXY did relative to SPY after the market sold off in February this year.  The chart with both benchmarked to 100 appears below.



I wrote the paragraph above and then created this chart.  I was taken aback by the performance of SVXY from February 11ththrough the end of the year.  Do note that SVXY was hit hard around Brexit, but otherwise put up pretty good numbers relative to the S&P 500 from the market bottom in 2016.

Number 5 – How Useful SPX ATM Volatility Can Be

CBOE now lists SPX options expiring three times a week.  Typically, there are options expiring on Monday, Wednesday and Friday, but that is dependent on holidays.  The chart below shows the IV of Friday expiring SPX options for the next nine weeks.  I highlighted a couple of events on the horizon, notably Inauguration Day and the January Payroll report.  Note the IV for SPX options bumps higher just after we get our 45th President (1/27 expiration) as those options expire that morning.




A Friendly Warning

Finally, a warning, fading volatility spikes has been a profitable method of using volatility as a trading asset for some time.  As noted above it has worked quite well for several years.  However, we have had periods of consistently elevated volatility in the past and are overdue for the next one.  I pulled out and updated my favorite long term equity market volatility chart to highlight this point.  Below is a chart of the CBOE S&P 100 Volatility Index (VXO) which has been tracking volatility using S&P 100 index option pricing for 31 years.  As I typically do for volatility index charts this represents the high low and average for each year.  Notice that even 2008 pales in comparison to what happened back in 1987.  I just want to leave everyone with the knowledge that selling volatility has worked, but make sure you are protected when the next big unknown event hits stock prices and quickly pushes volatility to higher levels.



Finally, thanks to all the readers we have acquired over the past five years or so.  Your feedback has made me a better instructor and market observer.  I hope to hear from more of you in 2017 at

20 Volatility Indexes in 2016: BPVIX Rose 277% Pre-Brexit, and On Election Night VIX Futures Rose 55%

Dozens of worldwide volatility indexes can serve as valuable tools for investors who wish to gauge intraday and long-term sentiment changes related to a variety of asset classes. In addition, investors take long and short positions in futures and options on key volatility indexes.

The tables and seven graphs below provide an overview of the 2016 performance of 20 volatility indexes and the CBOE SKEW Index. Key points regarding volatility indexes in 2016 include the following:

  • There were some big moves in volatility indexes around the June 24 Brexit vote and the November 8 U.S. election.
  • New all-time daily trading volume records for futures on the CBOE Volatility Index® (VIX®) during Extended Trading Hours (non-U.S. hours from 3:30 p.m. to 8:30 a.m.) were set on June 24 (235,141 contracts) and again on November 9 (263,663 contracts).
  • The prices for VIX futures rose 55% over a 140-minute period on the night of November 8 (see Exhibit 2 below).
  • The daily closing values of the CBOE/CME FX British Pound Volatility Index (BPVIX) rose from 7.72 on Jan. 8th, to 29.10 on June 14th, a rise of 277% (see Exhibit 3 below). Implied volatility on the British pound was one of the financial markets’ biggest major movers in the months leading up to the Brexit vote (see Exhibit 3 below).
  • While the average daily closing value of the VIX Index in 2016 was 15.8 (below its long-term average of 19.7 since 1990), the average daily closing value of the CBOE SKEW Index was 127.6 (the second highest level among all its 27 years since 1990). These numbers could indicate that demand for hedging with deeper out-of-the-money S&P 500® (SPX) protective puts options could have been stronger in 2016.


The CBOE Volatility Index® (VIX® Index) is a leading measure of market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices.

In 2016 the daily closing values of the VIX ranged from 11.27 to 28.14, and the VIX rose a record ninth straight trading day on November 4 (prior to the U.S. election).



On the November 8 Tuesday election night in the United States, the reported prices for the November futures on the VIX Index rose from a low of 15.10 at 8:07 p.m. E.T., to a high of 23.46 at 10:27 p.m. E.T., a rise of 55% over a 140-minute period (source: Bloomberg). Reported volume for VIX futures during non-U.S. trading hours was an all-time record of 263,663 contracts during the November 9 trading session (which technically began at 3:30 p.m. C.T. the day before.  On Wednesday morning, the price of the VIX Nov. futures fell below 16, as a story at noted that “Conciliatory comments from U.S. President-elect Donald Trump in the aftermath of his stunning victory over Hillary Clinton helped global stock markets erase a large chunk of their earlier losses Wednesday.”



While average daily close for the BPVIX Index was 12.0 in 2016, the BPVIX Index soared to 29.1 on June 14, prior to the Brexit vote.  Futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) are available, and some observers believe that interest rate volatility could soar in 2017.



In 2016 the CBOE Crude Oil ETF Volatility Index (OVX) hit a daily closing value peak of 78.97 on February 12, and it closed the year at 30.83.



In 2016 the peak daily closing values were 37.99 for the HIS Volatility Index (Hong Kong) and 39.90 for the EuroSTOXX 50 Volatility Index.



In 2016 the average daily closing values were 30.9 for the VXAZN Index, 23.6 for the VXGOG Index, and 25.3 for the VXAPL Index. Exhibit 6 shows that the VXAZN Index had some big moves, and that the earnings announcement dates for Amazon in 2016 were on January 28, April 28, July 28, and October 27.



In 2016 the highest daily closing values were 153.66 for the CBOE SKEW Index on June 28, and 125.13 for the CBOE VIX of VIX Index (VVIX) on June 24. Both indexes hit relatively high levels around the June 24 Brexit vote and the November 8 U.S. election, as there was uncertainty as to how these events might impact equity markets.



The volatility indexes above are designed to primarily serve as gauges for market expectations of future volatility, and are not meant to show investable performance.

For those investors who would like to explore the possibility of investing in VIX futures and options, there are certain benchmark indexes that are designed to show the potential for investable performance for certain strategies that use VIX futures or VIX options. Here are the 2016 changes for a sampling of the many benchmarks that use VIX futures or VIX options –

  • 28.8%               S&P 500 VIX Futures Term-Structure Index TR
  • 25.2%               VPD – CBOE VIX Premium Strategy Index
  • 23.0%               VPN – CBOE Capped VIX Premium Strategy Index
  • 8.3%                 S&P 500 Dynamic VIX Futures Index TR
  • 1.1%                 VSTG – CBOE VIX Strangle Index
  • 1.0%                 VXTH – CBOE VIX Tail Hedge Index
  • 0.1%                 S&P 500 Dynamic VEQTOR Index TR
  • -28.3%              S&P 500 VIX Futures Tail Risk Index TR – Short Term

To learn more about the CBOE benchmark indexes, please visit, and read closely the related disclosures and disclaimers. Past performance is not predictive of future returns.


Please visit for links to information on more than 25 volatility indexes, strategies and a bibliography.

History Lesson – VIX at Year’s End

I have been banned from CBOE until next year due to having an abundance of unused days off.  However, I can still play with numbers and I decided to take a look at what VIX does on average between the last trading day before Christmas and the first trading day of the following year.  This first chart takes the average action from 1990 to 2015.  I found it pretty interesting that on average VIX actually rises (18.46 to 19.87), but upon further reflection the dampening impact of holidays getting out of the way may provide a boost to spot VIX.



Chart number two takes the January VIX futures price action from the last trading day before Christmas through the first day of the following year.  I used Jan VIX futures pricing from 2005 to 2015.  Behold!  It appears the futures actually drift lower over this time period.  In fact the average pricing drops from 18.90 to 18.37.



Finally, I decided to check on spot VIX over the 2005 to 2015 period relative to the Jan futures.  The uptrend in VIX held up over this different time period with an average rise from 16.79 to 17.79.



So despite the average gain in spot VIX, the futures actually have dropped on average through the holiday period.  If you are trading any VIX derivatives, the futures are always a key market to pay attention to and the story from Christmas to the new year is different in futures world than index world.

VIX Nov. Futures Shot Up by 55% on Election Night, but Later Retreated After Conciliatory Speech

NOV 9 – Four charts with big price moves over the past two days are presented in this blog.

On the Tuesday election night in the United States, the reported prices for the November futures on the CBOE Volatility Index® (VIX®) rose from a low of 15.10 at 8:07 p.m. E.T., to a high of 23.46 at 10:27 p.m. E.T., an amazing rise of 55% over a 140-minute period (source: Bloomberg). Reported volume for VIX futures during non-U.S. trading hours was 235,141 contracts on June 24 (Brexit) and an estimated 263,663 contracts (a new all-time record) during the November 9 trading session (which technically began at 3:30 p.m. C.T. the day before.

On Wednesday morning, the price of the VIX Nov. futures fell below 16, as a story at noted that “Conciliatory comments from U.S. President-elect Donald Trump in the aftermath of his stunning victory over Hillary Clinton helped global stock markets erase a large chunk of their earlier losses Wednesday.”



A Bloomberg news report noted that “The peso tumbled to a record as Donald Trump’s victory in U.S. presidential elections raised the prospect that two decades of Mexican economic integration with its northern neighbor will unravel.” Visit for CBOE information on managing currency risk.




The CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) rose from a low of 5.11 on Tuesday to a high of 5.64 mid-day Wednesday. Visit for information on TYVIX futures.



The VVIX Index is an important indicator for investors who are trying to gauge the implied volatility related to VIX options. The VVIX Index fell from a high of 114.56 on Tuesday to a low of 99.51 mid-day Wednesday.



To learn more about managing your portfolio with index options, please visit the Strategies and Education tabs at the CBOE website. Information and price charts on 30 volatility indexes is at

Qualified institutional investors also are welcome to register at for an upcoming Risk Management Conference hosted by CBOE —

  • RMC Asia 2016: Nov 30 – Dec 1, 2016 at the Conrad Hong Kong Admiralty, Hong Kong
  • RMC US 2017: Wednesday – Friday, March 8 – 10, 2017 at the St. Regis Monarch Beach, Dana Point, California.

On Election Eve, Volatility Indexes for Stocks, Gold, Currencies & Volatility Fall By More than 8% (after Record 9-Day Up-Streak)

NOV. 7 – Last week I heard about quite a bit of new interest in portfolio protection strategies, and on November 4 the CBOE Volatility Index® (VIX®) rose on a ninth consecutive day (a new all-time record for the VIX Index over its price history dating back to January 1990).

However, today (the date before the U.S. national elections), the S&P 500® Index rose 2.2%, and the percentage changes for some key volatility indexes were as follows:

  • -16.9%             VIX                  CBOE Volatility Index
  • -14.5%             EUVIX             CBOE/CME FX Euro Volatility Index
  • -12.3%         VXEFA            CBOE EFA ETF Volatility Index
  • -10.3%             VVIX                CBOE VIX of VIX Index
  • -8.4%         GVZ                CBOE Gold ETF Volatility Index
  • 2.4%          TYVIX             CBOE/CBOT 10-year U.S. Treasury Note Volatility Index

Visit for values and prices changes for more than two dozen more volatility indexes.


Below are price charts showing daily closing values for four volatility indexes over the past eleven trading days. It appears that FBI announcements (on Friday, October 28, and on Sunday, November 6, regarding the status of their investigations of Hillary Clinton’s emails) had an impact on key volatility indexes.




The next chart below show the Livevol estimates for the volatility skew for VIX options at the close today (when the VIX Index was priced at 18.71. Note that the implied volatility estimate for the VIX 20 calls expiring this Wednesday was 330 (much higher than the estimates for implied volatility for VIX calls that expire on the following Wednesdays).



 To learn more about managing your portfolio with index options, please visit the Strategies and Education tabs at the CBOE website.

Qualified institutional investors also are welcome to register at for an upcoming Risk Management Conference hosted by CBOE –

  • RMC Asia 2016: Nov 30 – Dec 1, 2016 at the Conrad Hong Kong Admiralty, Hong Kong, and
  • RMC US 2017: Wednesday – Friday, March 8 – 10, 2017 at the St. Regis Monarch Beach, Dana Point, California.


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