Emerging Market Volatility Last Week – 8/17/2014

The emerging market sector continues to perform well in 2014. This performance comes in spite of the iShares MSCI Emerging Markets ETF (EEM – 44.51) having about 5% of the fund exposed to Russia. EEM rose about 1.8% last week which places the fund up more than 7% for the year. VXEEM dropped over 14% based on the strong week.



Brazil is the star of the emerging market sectors this year. The iShares Brazil Capped ETF (EWZ) was up a hair shy of 3% last week and finished the week 12.81% higher for 2014. Despite the strong performance VXEWZ was down less than a point last week. There was a tragedy on Friday where one of the leading candidates for president was killed in a plane crash which rattled VXEWZ a bit.  I posted a blog in this space about the market impact of that plane crash earlier last week –


I’ll discuss the other reason VXEWZ remains elevated in the discussion of the curves below.


VXEEM shifted to have more of a contango appearance with the index moving lower. The more interesting curve story comes from VXEWZ. This curve is fairly elevated with September and October futures and then the November price is at a discount to the other two. On October 5th Brazil may elect a new president, unless the old one is re-elected. The markets are showing some real uncertainty regarding the potential outcome and may continue to do so until the results are announced. This is going to be something I’ll keep a close eye on until early October.


Short-Term Volatility Last Week – 8/17/2014

VXST was displayed the expected amount of calm over a week where the S&P 500 rose over 1%. The only real excitement came via a little noise on Friday morning. After a bit of a swoon and by the end of the day the S&P 500 was almost unchanged. I guess the time frame for recovery from international events is now down from a day or two and can be measured in hours.


The VXST curve moved in sync with the index and shifted lower. The September 10th contract started trading on Thursday and I was really looking forward to seeing how that contract was priced relative to the other futures. The monthly employment number that always catches the attention of the investment world comes out on September 5th so the relative pricing of the September 10th contract can be an indication of how the market is discounting the risk of a big move around this economic report. It appears from the curve below that traders are more concerned with the last few weeks of summer than what may come from the jobs report.


Gold and Oil Volatility Last Week – 8/17/2014

The price action for the oil and gold markets, along with their respective volatility indexes is inerrable when the state of the world is taken into consideration. Even a looming shooting war between Russia and Ukraine doesn’t do much for the price of oil, gold, or implied volatility of either markets.

Friday things started to get a bit interesting, but died off as the afternoon approached. Note that GVZ tried to reach for higher levels on the week, but just couldn’t hold on.



The price of oil seems to have no geopolitical concerns at all.   I have a hard time buying the thought that Oil is down due to a slow economy, the numbers just don’t show that.


Looking at the curves, GVZ seems to believe that price action will continue to be relatively dormant which the bump in the September and October OVX futures relative to the index make me wonder if some traders are bracing for a price shock (could be higher or lower) in the next couple of months.


VIX Last Week – 8/10/2014

VIX was lower on the week by about 7%. However, from the close Monday to Friday VIX actually worked a bit higher and without Friday’s very impressive rally VIX may have finished the week higher. Looking at the chart below I find the highs on Thursday and Friday pretty interesting.   The highs surpassing last week’s close  show some market concern during the day, but calm took over before they turned the machines off for the weekend.


The VIX curve only had one big mover and that would be the index. The futures discounted a move lower for VIX and for the umpteenth time in three years the futures got it right. Speaking of three years, I found it interesting that no one seemed to mention Friday was the three year anniversary of the last real ‘volatility event’ on 8/8/2011 – on that day the S&P 500 dropped 6.66% (you can’t make some things up) and VIX went from 32.00 to 48.00.


On Thursday there was an interesting August option trade that came in mid-morning. Someone bought 12,000 VIX Aug 16 Puts, sold 12,000 VIX Aug 15 Puts and then sold 24,000 more VIX Aug 14 Puts receiving a credit of 0.12. Let’s just say someone is really hoping for VIX settlement to come in right at 15.00 on August 20th.

VXST Last Week – 8/10/2014

The combination of the S&P 500 not following through on the downside after the previous week’s slide and no significant economic event on the horizon for the near term resulted in a pretty big drop in VXST this past week. The index came in from over 19 to the mid 15 level and finished the week at a slight discount to VIX.


I am the first person that admits when they do not know something and when I see flat volatility curves I really do not have a consistent explanation as to how they should be interpreted. Maybe if I’m uncertain what it means, that is how it is to be interpreted, the market is in a bit of flux wondering if the S&P 500 has another all-high in it, or is the long expected (by market pundits) correction finally beginning.


Last Week in Volatility Indexes and ETPs – 8/10/2014

I liked the chart below so much I tweeted it before I wrote anything about it. Last week the indexes that measure different implied volatility periods based on the SPX option trading came back to the comforting contango shape we are all so used to. The shape is ‘normal’, but since volatility should be looked at relative to recent history I thought adding a third curve that displays the average closing prices for VXST, VIX, VXV, and VXMT in 2014 was worthwhile. The shape is normal, but the risk levels are still elevated relative to most of this year. VXST VIX VXV VXMT Curves


In the ETN space the funds that based their performance on VIX futures strategies were higher despite a drop in VIX.   We can attribute that to the September VIX future rising (slightly) last week. September is now the dominate contract for VXX and was 72% of the strategy as of Friday last week.

Option ETN Table

Finally, I came across a trade from Friday in VXX where someone does not think we are done with higher volatility in August. There was a buyer of 10,000 VXX Aug 29th 30 Calls at 4.90 who also sold 10,000 of the VXX Aug 29th 33 Calls for 3.00 which comes to a net cost of 1.90. The best case for this trade is VXX at or above 33.00 on the close on Aug 29th where the trade will turn a 1.10 profit. With VXX closing at 33.21 on Friday I would say the expectation is based on another volatility spike or two between now and late August.

Last Week in Gold and Oil Volatility – 8/10/2014

Oil futures remained below $100 and despite frightening things going on in the world there seems to be very little geopolitical risk premium showing up in the price of oil or options that are based on the oil market. OVX basically worked lower over the course of the week.

OVX Price Action

This past week was a busy one at The Options Institute. We bid farewell to the best group of interns I have worked with in my five years at CBOE and we also hosted a class of college students for our late summer Investing and Trading for College Students class. When we have busy weeks I do not get to keep an eye on the markets. I did see some headlines discussing higher gold prices and was surprised to see that GLD remains in the 120.00 to 130.00 range despite some headline hype. I think it is going to take a break over 130.00 or a move under 120.00 to really catch the interest of GVZ.

Gold Weeklys 08082014


With GLD remaining range bound GVZ was pretty dormant as well, closing lower on Monday and then grinding higher as the week goes along.

Gold Price Action

Finally, the curves both moved in a pretty uniform pattern last week, with GVZ and respective futures moving higher and OVX and respective futures dropping on the week.


Last Week in Russell 2000 and Nasdaq-100 Volatility – 8/10/2014

If you wonder where the risk has been in the US markets in 2014 then you haven’t been paying attention to the CBOE Russell 2000 Volatility Index. The Russell 2000 (RUT) has not been able to get out of its own way this year and has lagged the performance of larger cap oriented market indexes such as the S&P 500. Last week the RUT played some major league catch up gaining just under 1.5% while the S&P 500 was up slightly. The 8% plus drop in RVX was the result of this strong week for small cap stocks.

RVX Price Action


The tech sector is represented by the performance of the Nasdaq-100 which was up slightly on the week. VXN responded by finishing the week slightly lower.

VXN Price Action

Both curves moved from backwardation into contango this past week, although you have to look very close at the VXN curve to get the picture. The parallel shift in the RVX curve makes me wonder if small caps stocks are on track to continue to play some catch up with large caps.


Emerging Market Volatility Last Week – 8/10/2014

The emerging market sector was down slightly last week when measured by using the performance of the iShares MSCI Emerging Markets ETF (EEM – 43.71). Despite the small drop in EEM, the implied volatility of EEM options dropped as well. I usually attribute this sort of price action to the US markets and the S&P 500 did manage a gain last week.

VXEEM Price Action


The Brazilian market and associated volatility index behaved just like EEM and VXEEM with the two dropping in sync. There is a little more to the price action in VXEWZ and it is associated with the political situation in Brazil. We are about two months away from national elections in Brazil which occur on October 5th. We may get to see some added price action in VXEWZ as this event approaches.

EWZ Price Action

The VXEEM curve returned to a fairly normal state of contango as the markets all calmed down last week. Looking on the right side of this figure below things are pretty interesting. As mentioned above Brazilian elections are on the horizon and the result occurs between the September and October expiration dates. September futures settle in a value based on October EWZ options and as the election will be just a couple of weeks away when we settle September VXEWZ future it appears from the high level of VXEWZ futures that the markets expect some real uncertainty to be in the market just before the election.


VIX Last Week – 8/3/2014

VIX rose just over 35% last week with the big part of that move coming from Thursday’s price action. However, Friday’s price behavior was pretty interesting as the S&P only finished down 0.29%, but did trade in a high low range of over 1%. For a longer review of what happened on Thursday click on the link that appears between these words and the VIX price chart –

http://www.cboeoptionshub.com/2014/07/31/vix-today-time-may-different/VIX PA


My personal pattern that goes along with how VIX moves to the upside have been short lived over the last couple of years relates to how I put this blog together. On weeks where VIX rises dramatically mid-week and then comes back down very quickly I would add an extra curve to the chart below to highlight the price action  Since VIX held up on Friday and the near dated futures actually played some catch up rising more than the index and narrowing the spread a bit.



Volume is always a big deal around CBOE, especially when it comes to VIX. Friday was a huge day for VIX futures volume with not just one, but two records broken. First, volume during the extended hours session came in at 68,033 contracts, which broker the previous record of 59,505 contracts which was set on July 10, 2014. The other new record that was set on Friday involved total VIX futures volume which came in at 527,803. The previous total VIX futures volume record was set on April 15, 2013 as a total of 449,955 contracts traded on that date.


  • Recent Comments

  • Tags