VIX® Views - Part 5

Vice President

CBOE

October 3 - 4:27 pm

On October 2^nd 85 financial professionals attended a panel discussion at CBOE on “Managing Risk and Yield in a Low Interest-rate Environment: Options-based and Low Volatility Strategies.”

The three panelists were –

(1) Mr. Scott Maidel, CFA, CAIA, FRM, senior portfolio manager in the equity derivatives group for Russell Investments and co-portfolio manager of the new Russell Strategic Call Overwriting fund. Russell Investments has more than $150 billion in assets under management and is headquartered in Seattle, WA.
(2) Mr. John Gambla, CFA, FRM, PRM, a Senior Portfolio Manager for the Alternatives and Active Equity Investment Team at First Trust Advisors L.P. John is a portfolio manager for the new First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH). First Trust Advisors, L.P. is headquartered in Wheaton, IL and has approximately $56 billion assets under management or supervision as of July 31, 2012.
(3) Mr. Edward McRedmond, Senior VP – Institutional & Portfolio Strategies, Invesco PowerShares, a firm headquartered in Wheaton, IL with franchise assets of over $65 billion that offers more than 140 ETFs, including the PowerShares S&P 500 BuyWrite Portfolio (PBP) and PowerShares S&P 500 Low Volatility Portfolio (SPLV).

The panelists considered a variety of topics on risk management, low volatility, and options-based strategies. A panelist noted his expectation that options-based will continue to experience great growth over the next decade. Two of the many charts presented are shown below.

VXTH AND BXY INDEXES

As shown on the chart below, in the time period from March 31, 2006 through Sept. 28, 2012, the top performers of the indexes shown in terms of returns were the VXTH Index (up 51%) and the BXY Index (up 43%).

PAPER BY RUSSELL INVESTMENTS

The paper by Russell Investments – “Capturing the Volatility Premium through Call Overwriting.” (July 2012) http://bit.ly/Russell-Buy-Write has several good charts on use of 1-month and 1-week options. Exhibit 1 of the paper showed risk and return for the BXM and BXY indexes. The paper notes that “Covered call writing has historically benefitted wealth creation and lowered overall wealth creation …”

PICTURE OF EVENT

In the picture below are (clockwise from top left) – John Gambla, Barry Feldman, Adam Cohen, Scott Maidel, Ed McRedmond, and Matt Moran.

MORE INFORMATION

For more information on indexes and research papers, please visit www.cboe.com/benchmarks

Posted in Education, Futures and Options, Performance, Research, VIX, Volatility | Leave a comment

VIX Presentations in NYC (Oct. 18) and Boston (Oct. 25)

Vice President

CBOE

October 1 - 7:37 pm

Accessing VIX and Volatility: Dynamics Features and Portfolio Applications

As shown in the charts below, both VIX® futures and VIX options are experiencing all-time record high average daily volumes this year. While interest in VIX is high, many investors remark that they would like to learn more about VIX and volatility. Presentations on Accessing VIX and Volatility will be delivered in New York and Boston later this month; if you would like to see more details and register to attend, please click on the links below.

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NEW YORK CITY, THURSDAY, OCT. 18^th, 6:00 p.m.

Joanne M. Hill, PhD, Head of Investment Strategy at ProShares Advisors
Matthew T. Moran, VP, Business Development, CBOE

At NYSSA, 1540 Broadway, (entrance on 45th Street), Suite 1010, New York, 10036

http://bit.ly/VIX-NYSSA

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BOSTON, THURSDAY, OCT. 25^th, 12:15 p.m.

Accessing VIX and Volatility: Dynamics, Features and Portfolio Applications

Joanne M. Hill, PhD, Head of Investment Strategy at ProShares Advisors

Matthew T. Moran, VP, Business Development, CBOE

At: Hyatt Regency Boston, One Avenue de Lafayette, Boston, MA 02111

http://bit.ly/VIXBSAS

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ALL-TIME DAILY TRADING VOLUME RECORDS FOR VIX FUTURES AND OPTIONS

In the past month all-time single-day trading volume records were set for both –

VIX futures on September 13, as 190,081 contracts traded; and
VIX options on September 11, as a reported 1,221,403 contracts changed hands.

VIX FUTURES VOLUME IS UP 80%

Average daily volume for VIX futures in the first three quarters of 2012 was 86,022 (up 80% over the average daily volume in 2011).

VIX OPTIONS VOLUME IS UP 10%

Average daily volume for VIX options in the first three quarters of 2012 was 428,050 (up 10% over the average daily volume in 2011). More VIX information is at www.cboe.com/VIX

Posted in Education, Futures and Options, Performance, Research, Uncategorized, VIX, Volatility | Leave a comment

OVX/VIX Ratio Rises Above 2.2

Vice President

CBOE

September 27 - 9:04 pm

Sept. 27 – Investors can gain valuable insights into the relative costs of various options positions by comparing the values of key volatility indexes. On Thursday the closing values for three volatility indexes were –

33.05 OVX – CBOE Crude Oil Volatility Index

17.07 VXV – CBOE S&P 500 3-Month Volatility Index

14.84 VIX® – CBOE Volatility Index®

NEWS STORY

In a September 27^th story, Bloomberg reporters Nikolaj Gammeltoft and Cecile Vannucci wrote –

“Oil Puts at 16-Month High Versus S&P 500 on Slowdown. Costs to protect against losses in oil jumped to a 16-month high compared with U.S. stocks, a sign the slowing economic recovery may be a greater risk to energy demand than to share prices. The Chicago Board Options Exchange Crude Oil Volatility Index, tracking 30-day options on the United States Oil Fund LP, climbed 2.3 percent to 35.13 yesterday and reached a two-month high of 36.58 on Sept. 19. The ratio between the oil gauge and the CBOE Volatility Index for equities rose to its highest since May 2011 on Sept. 19. Traders are paying a premium to protect against losses in oil futures, which have tumbled more than 9 percent since Sept. 14 compared with a 2.2 percent retreat in the Standard & Poor’s 500 Index. … The oil volatility index has climbed 44 percent since its record low on April 27. In the same period, the volatility gauge for U.S. stock options, known as the VIX, gained 3 percent. … “

COMPARING 3 INDEXES — OVX, VXV and VIX

Here are the daily closing OVX/VIX ratios on 3 select dates –

8-Aug-2011 1.17

19-Sep-2012 2.64

27-Sep-2012 2.23

The chart below shows 14 months of price movements for three indexes – OVX, VXV and VIX. The CBOE S&P 500 3-Month Volatility Index (VXV) is designed to be a constant measure of 3-month implied volatility of the S&P 500® (SPX) Index options. The VXV Index has tended to be less volatile than the CBOE Volatility Index® (VIX®), which measures one-month implied volatility. Using the VXV and VIX indexes together provides useful insight into the term structure of S&P 500 (SPX) option implied volatility. The ratio of the VXV to the VIX Index reached 1.41 on March 16, 2012, but in the past week the VXV/VIX ratio was around 1.1.

DAILY TRADING VOLUME RECORDS FOR VIX FUTURES AND OPTIONS THIS MONTH

This month all-time single-day trading volume records were set for both –

VIX futures on September 13, as 190,081 contracts traded; and
VIX options on September 11, as a reported 1,221,403 contracts changed hands.

The price chart above can be compared to the volume chart below as they both cover a 14-month time period.

Total volume for OVX futures is more than 8,600 contacts.

LINKS TO MORE INFORMATION

Volatility indexes www.cboe.com/volatility
CBOE Volatility Index^® (VIX^®) (with put-call ratios, CFE, charts, bibliography, etc.) www.cboe.com/VIX
Papers on Income Enhancement and Tail Risk Management www.cboe.com/benchmarks

Posted in Education, Futures and Options, Performance, Research, VIX, Volatility | Tagged OVX, VIX, VXV | Leave a comment

VXTH Index and Panel on Oct. 2nd

Vice President

CBOE

September 20 - 10:55 pm

Three financial experts will discuss the topic ‘Options for Managing Risk and Yield in a Low Interest-rate Environment’ at a panel discussion to be held from 5:00 p.m. to 6:30 p.m. on Tuesday, October 2nd on the fourth floor of the Chicago Board Options Exchange (CBOE), 400 South LaSalle Street, Chicago.

The three panelists will be:

(1) Mr. John Gambla, CFA, FRM, PRM, a Senior Portfolio Manager for the Alternatives and Active Equity Investment Team at First Trust Advisors L.P. John is a portfolio manager for the new First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH). First Trust Advisors, L.P. is headquartered in Wheaton, IL and has approximately $56 billion assets under management or supervision as of July 31, 2012.

(2) Mr. Scott Maidel, CFA, CAIA, FRM, senior portfolio manager in the equity derivatives group for Russell Investments and co-portfolio manager of the new Russell Strategic Call Overwriting Fund. Russell Investments has more than $150 billion in assets under management and is headquartered in Seattle, WA.

(3) Mr. Edward McRedmond, Senior VP – Institutional & Portfolio Strategies, Invesco PowerShares, a firm headquartered in Wheaton, IL with franchise assets of over $65 billion that offers more than 140 ETFs, including the PowerShares S&P 500 BuyWrite Portfolio (PBP) and PowerShares S&P 500 Low Volatility Portfolio (SPLV).

Admission is $10 in advance (or $15 at the door) with snacks and drinks provided.

Please RSVP via

http://www.acteva.com/go/ChicagoQWAFAFEW

by Friday, September 28th, 2012.

A press release with more information is at –

http://www.prweb.com/releases/2012/9/prweb9859956.htm

The meeting is jointly sponsored by Chicago QWAFAFEW and Chicago PRMIA.

Mr. Gambla will provide an analysis of the CBOE VIX Tail Hedge Index (VXTH) www.cboe.com/VXTH

Below is a chart from a paper by Asset Consulting Group entitled “Key Tools for Hedging and Tail Risk Management” (February 2012) http://bit.ly/TailRskACG

The chart shows the changes for three indexes — the VXTH Index, S&P 500 Index, and CBOE S&P 500 95-110 Collar Index (CLL).

For more information on indexes and studies, please visit www.cboe.com/benchmarks

Posted in Education, Futures and Options, Performance, Research, VIX, Volatility | Tagged PBP, SPLV, VIX, VXTH | Leave a comment

This Week in VIX and VXN Trading

Instructor

CBOE

September 16 - 9:11 am

Both the S&P 500 and Nasdaq-100 Indexes were higher last week. Neither VIX nor VXN followed the typical inverse relationship with the underlying indexes and actually finished the week higher as well.

On the open Friday, the S&P 500 was higher and VIX was under pressure trading around 13.50. I saw several twitter comments predicting a 12 handle for VIX before the end of the day. However, it appears even though the S&P 500 continued to finish positive on the day on the day that demand for SPX options picked up pushing VIX to higher levels as well. VIX finished the week at 14.51, up for the day and up just under 1% on the week. VXN held up better than VIX during the week, but did lose value on Friday. Although the implied volatility of NDX options dropped on Friday, VXN was up more than VIX on the week.

A similarity between VIX and VXN trading last week was the shift in each curve. Both spot indexes were higher along with the front month September futures contracts. However, beyond September, both VIX and VXN futures were all lower on the week. The result is a unique curve shift for both markets.

Finally, congratulations were in order for the VIX Futures pit as the CBOE Futures Exchange had record VIX futures volume last Thursday.

Posted in Futures and Options, VIX | Leave a comment

This Week In VIX Options and ETNs

Instructor

CBOE

September 15 - 3:09 pm

This past week the S&P 500 rose almost 2% on the week and in a strange twist VIX was higher on the week as well. Friday’s action contributed to a corresponding rise for VIX on the week as it appeared portfolio managers may have been in the market for portfolio protection through buying SPX puts. This sort of demand could be responsible for a jump in VIX. What was also interesting in the last week and especially on Friday was the increase for VVIX as well. VVIX was up 10 points on the week, gaining 5 points on Friday.

Although VIX gained on the week, with the exception of the September futures contract, VIX futures lost ground last week. That combined with the continued slope of near month prices put pressure on VXX along with the other long volatility exchange traded products. VXX was down 2.44% while VXZ dropped a staggering 7.67%. This relative under performance of VXZ relative to VXX would normally be associated with a spike on the short end of the VIX curve or possibly from the curve going inverted. However this drop in VXZ relative to VXX was due more to the farther dated VIX futures dropping more than the near dated futures.

The hedged and short volatility exchange traded products were both higher on the week. Emerging markets were higher on the week which translated to a higher EEMV and the US stock market strength was able to push USMV slightly higher on the week.

VIX Option activity started to shift focus to October as September expiration is creeping up on us. Rolling activity and new positions in October expirations and beyond on Tuesday pushed VIX option volume to a record day of 1.22 million contracts. Dec 24 Calls, Nov 18 Puts, Sep 20 Puts, and Oct 26 Calls all traded over 100,000 contracts individually that day. A specific trade that got some attention this past week was a large buyer of VIX Oct 30 Calls and subsequent seller of Oct 35 Calls. This spread was done for anywhere between a 0.10 and 0.16 and could pay off quite nicely if a double in VIX occurs between now and October expiration.

Posted in Futures and Options, VIX | Leave a comment

Record VIX Futures Volume

Instructor

CBOE

September 14 - 9:07 am

Comments: 2

Earlier this week (Tuesday) we witnessed record volume in VIX Options and now the VIX Futures trading at the CBOE Futures Exchange have followed suit. On Thursday the CFE experience a record volume day of its own with strong volume in the VIX Futures arena. At the CFE just over 190,000 VIX Futures were traded shattering the previous record of just under 160,000 contracts which occurred back on June 18, 2012. Average VIX Futures volume for 2012 is running at slightly over 83,000 contracts a day. Currently, there are contracts listed that expire on a monthly basis from September 2012 through May 2013. A month by month volume breakdown follows –

September 2012 63251
October 2012 62417
November 2012 23819
December 2012 13236
January 2013 10100
February 2013 8475
March 2013 6598
April 2013 1434
May 2013 751

What is a bit amazing is this record volume occurred on a day where VIX was under pressure. VIX was down 1.75 to 14.05 and the front month September contract was down 0.90 closing at 14.90 on the day.
The chart below compares the closing VIX and VIX Futures prices from Wednesday (9/12) and Thursday (9/13) this week.

Posted in Futures and Options, Uncategorized, VIX | 2 Comments

Record VIX Option Volume

Instructor

CBOE

September 12 - 10:37 am

Yesterday – September 11, 2012 was a record day for VIX option trading with approximately 1.22 million contracts traded. This surpasses the previous record of 1.17 million contracts back on August 5, 2011. This also marks only the third time that VIX option volume has surpassed 1 million contracts. The other day this occurred was last Friday – September 7, 2012. Average daily volume in VIX Index options has been around 423,000 contracts in 2012 up from the average daily volume of 391,000 in 2011.

A breakdown of the most active contracts from this record day appears with estimated volume is below –

Dec 24.00 Calls – 132,693
Nov 18.00 Puts – 121,220
Sep 20.00 Puts – 106,675
Oct 26.00 Calls – 104,890
Oct 28.00 Calls – 57,166
Oct 23.00 Calls – 45,050
Oct 35.00 Calls – 42,866
Nov 32.50 Calls – 40,251
Nov 28.00 Calls – 36,500
Sep 17.00 Puts – 31,144

Note the majority of actively traded options on this list are calls. The estimated volume breakdown on the day was 392,015 puts to 829,388 call options for a VIX put call ratio of 0.47. The average VIX put/call ratio this year has been around 0.63 so this high volume day was based on more calls relative to the number of puts trading on the day.

All CBOE Put/Call Ratio data is available at –

http://www.cboe.com/data/PutCallRatio.aspx

Posted in Futures and Options, VIX | Tagged VIX, VIX Options | Leave a comment

Q&A on VIX from CBOE Webcast

Instructor

CBOE

September 12 - 9:54 am