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.


Last Week in VIX – 6/8/2014

All market observers not on vacation are now aware that VIX closed on Friday at the lowest level since the financial crisis as the S&P 500 made new highs.   There will be market watchers that will say the very low VIX like this is a sign that the bull run is near an end, but odds are most of these market watchers have been making bearish comments since the S&P 500 was 20% lower. I’ve also heard the 2007 comparisons that say this is how the market was acting just before the crisis kicked off in 2008.


VIX futures prices played catch up to the downside last week as time to expiration and a high VIX continues to elude VIX bulls (which are also by default SPX bears).  Both June and July VIX futures lost close to 10% last week while the index was down around 6%.


Despite VIX coasting along under 11.00 Friday afternoon the last sizable VIX option trade of the week focused on July VIX Put and is based on VIX being over 12.10 at July expiration. That is if the trade is held that long. Someone came in just seconds before the Friday close and sold 20,500 of the VIX Jul 12 Puts for 0.10.   It’ll take a little (but not much) volatility for that trade to work out.

Last Week in Short-Term Volatility – 6/8/2014

VXST (and all the other volatility indexes based on SPX option prices) made an all-time low on Friday. A bit of this can be attributed to it being a Friday, but considering that he previous record low was on the Friday before the Memorial Day three day weekend that cannot be considered the whole story.



We are entering the summer season that more often than not has been a source of low market volatility. Considering that 2014 stock market action already has exhibiting pretty low volatility it may just be that the market is anticipating things to get quieter.   However, not all traders seem to feel that way. In VXST option trading there is solid open interest for the June 11th 12.50 Calls, 13.50 Calls, and 20.00 Calls. The following week’s expiration (June 18th) shows some activity focused on the 17.00 Calls.


Last Week in Gold and Oil Volatility – 6/8/2014

The price of oil is sputtering around and going nowhere. The result is that like VIX the CBOE Oil ETF Volatility Index (OVX -14.50) managed to close at a record low level on Friday. OVX data goes back to 2007 and 14.50 was the lowest close since December 26, 2013. For accuracy sake I’ll note that Thursday OVX closed at 15.14 and that record low stuck for 24 hours.



Friday nights I am usually doing my best to make sure the couch does not move and I indulge myself in watching the previous week’s Charlie Rose episodes. Airing on Bloomberg means that I see some market headlines from the previous week as I am being impressed by someone that has established themselves as the master of some sort of field. One headline that caught my eye paraphrases as, “Gold traders bored silly as volatility is at a 14 month low” (It was the word volatility that caught my eye – imagine that). I resisted the urge to jump off the couch and made a mental note to check the accuracy of this statement. This past week GLD traded in a range of 1.46 – the last time the range was that narrow was the last week of March 2013 – about 14 months ago. I did not call up any gold traders to see if they were bored, but I assume that part of the statement was true as well. The narrow range and GLD holding the 120.00 level pushed GVZ down on the week as seen below.


As far as the term structure curves go things shifted uniformly lower based on a complacent market outlook and little current price action. One final thought on Gold – GVZ closed at the lowest level since the first week of April in 2013 – two weeks later we got the biggest move in decades. Don’t take current complacency as being an accurate forecast of a lack of volatility on the horizon.


Last Week in Russell 2000 and Nasdaq-100 Volatility – 6/8/2014

The Russell 2000 (RUT) has been lagging other markets in 2014 after a great 2013, but played some catch up last week rising 2.71%. The result of the strong week is RUT now having positive performance for 2014. As would be expected RVX came under pressure and finished out the week at 17.09 which is low, but nowhere near the lowest closing level on record of 13.65 which occurred on March 14, 2013.



The NASDAQ-100 was up over 1% last week and VXN dropped as well. Like RVX, VXN is low, but no anywhere near the lowest close which occurred March 15, 2013 (the day after the record low for RVX) when VXN finished the day at 12.03. By the way on both March 14 and March 15 last year VIX closed at 11.30 which until yesterday was the post 2008 record low.


The price curves for both RVX and VXN shifted down and got a little steeper which is a textbook move as their underlying markets moved higher.



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