Weekend Review – VIX Options and Futures – 5/14/2017

VIX was slightly lower on the week despite the S&P 500 dropping as well.  The near dated futures worked lower with May finishing Friday at premium of just over 0.80 as that contract goes off the board this coming week.  From August and beyond the futures were actually higher which creates a pretty steep curve below.

VIX Table TS 5122017

On Tuesday, we got what I am going to refer to as a MOAVCS (Mother of all VIX Call Spreads).  Near the end of the day a trader came in and purchased at least 195,000 VIX Jun 30 Calls for 0.13 and sold the same number of VIX Jun 35 Calls at 0.07 for a net cost of 0.06.  All this happened when the June VIX future price was at 12.40.

VIX PO 5122017

Since there’s some time until June expiration I decided to include the half way to expiration payoff for this vertical spread.  Note that as the June VIX future price moves higher, the spread actually starts to show and unrealized profit.  In fact, it appears that a move to 20.00 would turn this trade into an unrealized profit.

Weekend Review of Volatility Indexes and ETPs – 5/14/2017

This time last week we were all pretty certain that the final round of the French election was a done deal.  Short term SPX implied volatility wasn’t taking any chances with VXST closing last Friday at 11.40.  With the election outcome going as expected VXST got a little crushed and the shape of the VXST – VIX – VXV – VXMT curve moved back to contango.


Both the S&P 500 and VIX dropped last week, as the number of potential stock market land mines over the next few weeks (that we can see coming) is limited.  VVIX inched up a bit as some traders took advantage of low VIX option IV to get long volatility exposure.  SKEW moved lower which is interesting with VIX so close to 10.00.  It may just be that no one is worried about a black swan any times soon, which of course by definition is when they happen.  A glimmer of hope for the longer term VIX bulls shows up in the performance of VXZ which is based on owning a basket of August, September, October, and November VIX futures contracts.

VXX Table 5122017

Of great interest on the table below is the move higher in both VXAPL and VXIBM.  Apparently, Warren Buffett has been adding to his AAPL position and scaling back his IBM holdings which may have sparked option trading after last weekend’s Berkshire get together in Omaha.  Apparently the call buying was aggressive enough in the AAPL arena that the skew for AAPL options was higher on the call side than the put side to start last week.  VXMT moved higher, which mirrors the move in VXZ above, which may make one wonder if the market is focusing on the fourth quarter of 2017 as the latest at which we will expect lower stock prices.

Vol Index Prices 5122017


For the mean time, long volatility continues to take it on the chin as both VXX and UVXY moved lower.  SVXY benefits from what is bad for the long funds and now is up almost 70% for 2017.

VXX UVXY SVXY Comp 5122017

I went searching the ETP option world for a very bullish trade to discuss this weekend.  When things are so quiet as represented by VIX, but at the same time there seem to be multiple geopolitical situations that could erupt at any moment some traders will be looking for a cheap method to be on the right side of a volatility spike.  UVXY call options are a great place to find such a trade and I didn’t have to look to hard to find a good one.

UVXY PO 5122017

On Friday afternoon with UVXY around 12.55 a trader purchased the UVXY Jun 9th 12.50 Calls for 1.26 and then sold the UVXY Jun 9th 21.00 Calls at 0.31 for a net cost of 0.95.  The payoff at Jun 9th expiration shows up below, although a quick volatility event would probably result in our trader monetizing some profits.

2017 Volume Rises for VIX and SPX Options, and for VIX Futures

Monday, May 8, 2017 – After the results of the French election were announced yesterday, this was a notable day in the options and volatility markets –

  • The CBOE Volatility Index® (VIX®) fell 0.80 points and closed at 9.77 (it lowest daily close since December 1993);
  • Bloomberg’s estimate of 30-trading day historic volatility for the S&P 500 Index fell to 6.52;
  • The CBOE SKEW Index (SKEW) fell 3.24 points to close at 128.12 (still well above its long-term-average of 118.6)

Today I received multiple questions from customers about press coverage of options volume trends. While many observers believe that low volatility often can inhibit options volume growth, some investors like the idea of purchasing relatively “cheap” options protection when the VIX Index is well below its long-term average.


VIX futures average daily volume rose to 265, 954 in Jan.-April 2017, and it is up for the 11th year in a row.

VIX options average daily volume rose to 712,490 in Jan.-April 2017.

In March 2017 the VIX options open interest rose to more than 12.8 million contracts.

In March 2017 the VIX call options open interest rose to more than 9 million contracts.

SPX options average daily volume rose to 1,161936 in Jan.-April 2017.


To learn more about use of SPX and VIX options, and VIX futures, please visit www.cboe.com/SPX and www.cboe.com/VIX.


Weekend Review of VIX Options and Futures – 5/7/2017

VIX managed to (briefly) put in a post Great Financial Crisis low hitting 9.90 on Monday and sneaking in a 9.99 low on Friday as well.  Full disclosure, I didn’t even see the 9.99 print on Friday, but then again, we are getting conditioned against getting too excited when VIX dips below 10.  Worth noting below is the bigger drop in the May future when compared to spot VIX.  Typically, we see this closer to expiration, but when there’s very little on the horizon that the markets are worried about the curve will flatten and that’s the environment we are experiencing.

VIX Table Chart 05052017

Two weeks ago, the world was fixated on what was going to happen in the French election.  As a reminder, the second round is this weekend.  However, the markets aren’t terribly concerned about the potential outcome on Sunday and the VSTOXX curve is indicating the expectation for a quick drop in VSTOXX on Monday as the May future is at a 2 point discount to  the spot index.

VSTOXX Curve 05052017

This weekend’s highlighted trade was executed over the course of the day on Friday in several mid-sized chunks.  There was a buyer of the VIX Jun 21st 12.50 Calls who sold the same number of VIX Jun 21st19.00 Calls.  The individual option prices varied, but the majority of these spreads were executed at a cost of 0.87.  The trader gets some long volatility exposure between now and the longest day of the year.  The payoff diagram below shows the outcome at expiration and with 21 days to expiration or the midpoint on the calendar between Friday and expiration.

VIX Payoff 05052017

Weekend Review of Volatility Indexes and ETPs – 5/7/2017

The chart below may be one of the final references to the French Election which came to an end this weekend.  Note VXST, which reflects the IV of very short term SPX options was elevated going into the weekend.  I don’t think it is too much of a stretch to say that a quick drop in VXST may be in the cards come Monday morning.


SKEW dropping dramatically last week may be the last bastion of higher volatility dropping.  This happened despite VIX dropping which makes the SKEW move even more significant.  I was a bit surprised that TYVIX was higher, although off a very low base, since we got an FOMC meeting behind us last week.

VXX Table 05052017

SVXY is now a rounding error below up 65% for the year and UVXY is now down 70%.  It’s only May 5thand these numbers are more like what would be expected as the year comes to an end, not with about seven months to go.

VXX SVXY UVXY Comp552017

Two weeks ago, all volatility indexes quoted by CBOE were lower.  Many, but not all, rebounded last week.  I guess we need to keep an eye on China, Oil, and other emerging markets if the volatility index changes are to be believed.

Vol Index Prices 05052017

Finally, over the weekend I posted a chart that resulted in me being called some ugly names and my intelligence being questioned.  Thank goodness my children don’t have Twitter yet.  The chart below is the chart in question and now I attempt to explain it in more than 140 characters.

2007 2017 VIX Comp

I was asked by a reporter to double check what year was the last time VIX had moved below 10.00.  It turned out to be early 2007 so I took a stab a overlaying 2007 VIX daily price action with the year to date 2017 action.  Note that in the second half of 2007, as a prelude to the Great Financial Crisis, VIX made some dramatic moves to the upside.  The point here is that this can happen, not that it will.

Traders do well selling volatility when VIX is low and often give up profits when we get a quick move to the upside in VIX.  My goal is to make sure people trade smart and reminding a complacent market what can happen was my goal when posting that chart.

Weekend Review of VIX Options and Futures – 4/30/2017

Everyone knows what an ear worm is and if not you will now.  It is basically when a song is stuck in your head.  Since Monday REM’s Orange Crush has been on constant replay in my head.  VIX losing 26% and the front month down 14% definitely qualify as a volatility crush.

VIX Table TS 428

Since all this crushing was caused by events in Europe (France specifically) we will take a look at the week over week VSTOXX and associated futures term structure change.  Now I have Officer Barbrady from South Park in my head saying, “Nothing to see here”.  However, that’s anything but true.  VSTOXX got hammered as did the futures markets.  Worth noting is that as of Friday the May and June contracts at a discount to spot VSTOXX.  Between now and May expiration there is the final round of the French election and before June expiration we get an election in Great Britain.  It appears the markets expect there will nothing to worry about with either of these known unknowns.


Late Friday, with VIX right at 11.00 and the standard May futures contract at 12.30 a fairly large and cheap trade came into the VIX pit.  A bull call spread was created with 12,000 May 20 VIX Calls purchased for 0.15 and 12,000 VIX May 21 Calls sold at 0.12 for a net cost of 0.03.  The payoff diagram below shows the payoff on May 17th AM settlement and a potential payoff with 10 days left to expiration.

VIX PO 428

Note the half way to expiration profit is nowhere near as the maximum payout for this trade as shown by the at expiration line above.  However, keep in mind the cost of this trade was 0.03 and exiting at 0.20 or 0.30 is a pretty nice return.

Weekend Review – Volatility Indexes and ETPs – 4/30/2017

S&P 500 implied volatility was dramatically lower last week.  Of significance is VXV which hit 2017 lows.  I’m teamed up with an academic putting the final touches on a study showing that VXV leads VIX so this may be a signal that the low for VIX in 2017 hasn’t be established and a close below 10.00 is a distinct possibility.


Beyond the long ETPs on the table, which had a pretty tough week, are some other markets worth noting.  First, TYVIX, which was over 6.00 for the first time in a while finished the week down almost 26%.  SKEW gained, but don’t take that as an increase in tail risk as this would be expected with volatility moving lower across the board.  Finally, VVIX under 80.00 is possibly the most relatively complacent of the indexes quoted below.

VXX Table 428

SVXY approached all-time highs and is now up almost 60% for the year.  VXX and UVXY got hit on the move lower in the VIX complex.  I discuss a long SVXY trade that worked out well based on last week’s action at the end of this blog.  Do keep in mind that the second round of the French election is this coming weekend, there’s not a lot of uncertainty priced in, but if Le Pen makes a run in the polls we may have another opportunity in volatility trading brought to us by the French election process.  After that our attention will turn to London with elections being held in early June.


I need to double check with our volatility historian (who is actually me and I just don’t have time this weekend to confirm what I’m about to say) but I believe this is the first time since including this table in this blog that all volatility indexes were down on the week.

Vol Indexes 428

There are many ways to play a volatility crush like we saw last week.  One is to get long exposure to SVXY.  With a couple of hours to go in the trading day on Friday April 21st SVXY was around 127.50.  At that time, a trader purchased the SVXY Apr 28th 142 Calls for 0.68 and then sold the SVXY Apr 28th150 Calls for 0.18 and a net cost of 0.50.  A payoff based on this past Friday’s close appears below.


I did a little more work on this trade.  First, I took a look at how often SVXY has rallied enough in a single week to hit or exceed the long strike (150) in this call spread.  To hit 150, SVXY would needed to have gained about 17.6% last week.   SVXY has been around for 128 weeks and one 3 times a one week rally of 17.6% or greater has occurred.

If held to expiration, the result would be a profit of 2.51 (0.50 cost – 142 Call 3.01 in the money on Friday’s close).  Personally, I would have taken this trade off early so I checked the profit based on each day’s closing prices for the two option in this trade.  Monday, on the close, a profit of 2.77 could have been realized, Tuesday 3.87, Wednesday 3.10, and Thursday 3.13.  Any way you slice it, this trader did a good job anticipating the subsequent drop in S&P 500 volatility that we witnessed last week.

April: A Testing Month for VIX Traders

Shorting VIX® was among the top strategies in the past year.  XIV and SVXY both went up over 50% in Q1 2017 (~15% in March alone), almost doubled in the past six months, and returned ~180% over the past 12 months (see Exhibit 1).  However, the declining VIX spot level can only explain part of their performance.

Both XIV and SVXY consistently provide a short exposure to VIX futures, not the spot VIX index.  They are exchange-traded products that track the S&P 500® VIX Short Term Futures Inverse Daily Index, which, as its name suggests, seeks to track the inverse of the S&P 500 VIX Short Term Futures Index.

The S&P 500 VIX Short Term Futures Index takes long positions in the first- and second-month VIX futures contracts.  A proportion of the first-month contract (ticker UX1) is rolled to the second month (ticker UX2) every day to maintain a constant 30-day maturity.  As the second-month futures are usually more expensive than the first month (see Exhibit 2), this long VIX futures exposure usually incurs a loss from the roll (the “roll cost”), while the inverse of this exposure, as provided by the S&P 500 VIX Short Term Futures Inverse Daily Index, usually generates a profit from the roll (the “roll yield”).

The roll cost of the S&P 500 VIX Short Term Futures Index may seem small on daily basis, but in aggregate, it causes the index to go down over a long-term horizon.  In the 12-month period (253 trading days), positive roll cost occurred on 247 days (97.63%).  This is the main driver behind the enormous growth of inverse VIX futures products.

However, April 2017 will be an interesting month for VIX traders for a number of reasons.

First of all, the spread between the first-month and second-month VIX futures contracts has narrowed (see Exhibits 2 and 3).  In addition to the reduction in roll yield of the short VIX futures exposure, the flattening of the VIX term structure usually indicates anxiety being built up in the market.  In a distressed market, the VIX term structure may even -become inverted, when the first-month futures  become more expensive than those of the second month.

Secondly, the spread between the VIX spot and the 30-day realized volatility of the S&P 500 has tightened.  As the benchmark of implied volatility, VIX is expected to be higher than the 30-day realized volatility of SPX.  A tightened spread often indicates that the market is complacent and a VIX spike is on the way.  When VIX spikes, the inverse VIX futures products usually incur losses.


Finally, risk coming from outside of the U.S., including the upcoming French election, should not be overlooked.  As illustrated in Exhibit 5, the term structure of VSTOXX, a VIX-like index that measures the 30-day implied volatility of the Euro Stoxx 50 index, became inverted over the month of March 2017.  As the European market is getting ready for the April 23, 2017 election, market participants in the states might need to fasten their seatbelts.

The U.S. equity market was resilient after Brexit and the U.S. presidential election, but how it will respond to the results of the French election is yet to be revealed.  April could be an interesting month for all VIX investors, on the long or short side of the trade.

Weekend Review – VIX Futures and Options – 4/2/2017

The Friday to Friday change in the VIX term structure was as orderly as I’ve seen it in some time.

VIX Table Curve 330

VIX has had a lower average daily close during a quarter only once, the fourth quarter of 2006.  However, the low to high range for VIX has never been tighter than what we experienced in the first quarter of 2017 with the range of 2.54.  On average the range of closing VIX prices is about 10.60 so the VIX market may be a bit wound up to the point where a big move to the upside is coming sooner rather than later.

VIX by Quarter330

Another factor that is looming over the volatility space is the pending election process beginning later this month in France.  The curve below shows spot VSTOXX and associated futures pricing. Note the shape is not normal with the April contract as an outlier.  VSTOXX and VIX usually move in line with each other, but the futures pricing of each market indicates a divergence is on the horizon.  Either VSTOXX pulls VIX higher or VIX is the leader and VSTOXX moves lower over the next few weeks.

VSTOXX Curve330

It may seem like a long time ago, but VIX came close to a 15 handle early Monday before backing off and returning to normal levels for 2017.  There were contrasting trades early Monday, one fading the move and one looking for some follow through to higher levels for VIX.  Let’s look at the fade trade first.

With VIX around 14.80 and the April futures around 14.60 (yes backwardation!) there were a seller of the VIX Apr 14 Calls at 1.54 who purchased the Apr 21 Calls for 0.46 and a net credit of 1.08.  The payoff at April expiration appears below.

VIX Bearish PO 330

The bullish VIX trade occurred when spot VIX and the April contracts were at similar levels.  This trader bought the VIX Apr 15 Calls at 1.29 and sold the Apr 20 Calls for 0.52 and a net cost of 0.77.  That payout appears below.

VIX Bullish PO 330

So far so good for the fade trade, as spot VIX and the April contract finished the week much lower than where it started, however there’s still time to go for the bullish trade.

Weekend Review – Volatility Indexes and ETPs – 4/2/2017

The shift lower in the VXST – VIX – VXV – VXMT curve was 75% parallel and 25% dramatic.  The dramatic move was at the shorter end of the curve where VXST dropped 28% moving from a premium to discount relative to VIX.


As noted volatility was lower across the board.  Of interest below, VVIX finished below 80 and TYVIX remained at very low levels. For the volatility bulls the only glimmer of hope is SKEW around 140, but it is pretty difficult to get excited about any level of SKEW when VIX is in the tweens.

VXX Table330

SVXY knocked the cover off the ball rising over 55% for the first quarter.  Not on the chart, but worth noting is the REX VolMAXX Short VIX Weekly Futures Strategy ETF (VMIN) which focuses on a shorter time frame than SVXY and XIV, was up 61.4% in the first quarter.


Since the quarter has come to an end the focus will soon turn to first quarter earnings.  Higher option implied volatility is often a bi-product of a pending earning release.  Although the announcements are a few weeks out, AMZN and AAPL option volatility rose last week.  The two Euro Currency related volatility indexes were among the gainers.  VXEFA which is an indication of risk associated with Euro Zone stability.  VXEFA is based on EFA ETF options which is a fund that gives investors exposure to developed markets excluding North America (US and Canada).  As a result, there is a heavy weighting toward European stocks in this index.

Vol Indexes 330

Finally, the first size VXX trade I’ve seen that appears to be focusing on the French election process which should come to an end on May 7th.  On Friday, with VXX at 15.53 a trader sold the VXX May 5th14.00 Puts at 0.33 and the purchased the VXX May 12th 13.50 Puts for 0.33.  Selling puts that expire before the final election and purchasing puts that expire just after just might be a bet on a post French election volatility crush.  The payoff below shows the outcome upon expiration of the May 5th position.


This trade is pretty interesting as it is offers short volatility exposure, but does not realize any losses if we get an unexpected upside volatility event between now and May 5th.  The worst-case scenario of a complete collapse in volatility which overshoots the put strikes and results in some sort of loss, which is capped at 0.50.  I always say traders will continue to find fascinating ways to utilize the different tools at their disposal and here is another example.


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