Large VIX Ratio Call Spread Rolled from June to July Today

It appears one volatility trader believes a spike is on the horizon for VIX, but altered the timing of their outlook today. They were prepared for a move to the upside before June expiration, but rolled their position out to VIX options expiring July 22.

The specific position was long 180,000 VIX Jun 17 Calls plus short 360,000 VIX Jun 23 Calls (1 x 2) which was rolled out to long 180,000 VIX Jul 17 Calls plus short 360,000 VIX Jul 23 Calls in a big rolling trade at CBOE today. My hope is to visit the VIX pit tomorrow to get a little more color on this trade and report back with a little more color in the morning.

VIX option volume topped 1.5 million contracts today, aided by this large trade. The result is that despite a low volatility environment today was the busiest day of the year for VIX option trading and the eighth busiest on record.

PUT Index Tops 1500 and Hits All-time Daily Closing High – By Matt Moran

On Friday, May 8, the CBOE S&P 500 PutWrite Index (PUTSM) closed at 1501.08, its highest all-time daily close and the first time the index closed above 1500. PUT is an award-winning benchmark index that measures the performance of a hypothetical portfolio that sells S&P 500® Index (SPX) put options against collateralized cash reserves held in a money market account.

PUT-May 8The daily historical data for the PUT Index extends back to June 30, 1986. Since mid-1986 the PUT Index has had higher returns and lower volatility than the S&P 500 Index, the 30-Year Treasury Bond Index (Citi), and the S&P GSCI Index (that measures commodity performance).

PUT-SPTR line chart

Retu & SD PUT

In viewing the charts above, an astute investor might ask – if the markets are efficiently priced over the long term, how can one index have the highest returns and lowest volatility in a group of indexes?

There is evidence that suggests that, in most years since 1990, the markets for S&P 500 (SPX) options generally usually have been richly priced, and that consistent sellers of one-month SPX options have had the potential to achieve relatively strong risk-adjusted returns. Please see the chart below and the research papers at for more information on the topic of richly priced index options.

Implied minus realized

For the many investors today who are concerned about low interest rates for fixed income instruments, and high p/e ratios for stock indexes, it could make sense to explore the pros and cons of the PUT Index and the cash-secured put writing strategy. Later this year there may be a launch of an ETF that is designed to track the PUT Index. To learn more about the PUT Index, please visit

Last Week in VIX – 5/10/2015

VIX was slightly higher and the futures were mostly lower with a couple of exceptions last week. There was a bit of excitement in the middle of the week so I included an extra piece to the graph below and decided to show Wednesday’s highs for VIX and the futures market.  If I had not done that it would be pretty difficult to see there are two different lines showing VIX closing levels on the 1st and the 8th.

VIX Curves

We all know that Friday was the employment number with the stock market rallying in response and VIX dropping as would be expected. On Thursday there was a sizable trade I came across that appeared to be setting up for a spike in VIX. In several different lots at the same time on the tape there was a buyer of VIX May 14.50 Puts at 0.58, seller of VIX May 16 Puts at 1.60, buyer of VIX May 16 Calls at 1.00 who finished things up by selling VIX May 20.00 Calls for 0.49. The result of this buying and selling was a credit of 0.51 and a payout at expiration that appears below with where VIX and the May VIX futures were when the trade was executed.


The payoff above looks just like a vertical spread with the 14.50 (call or put) as the long leg and 20.00 (call or put). I believe this was done in four legs so there is more flexibility in trading around the position.

Finally, I have no way of knowing, unless I spoke directly to the trader, but my assumption was this trade went up in front of the employment number. I did go searching for what may have been exit trades on Friday and wasn’t able to find anything that looked like someone salvaging this trade as VIX moved lower. Any spike in VIX next week and I’ll be doing some detective work to see if this position is lighted up.

Last Week in VIX- 4/20/2015

We closed a chapter in VIX history with the April 2015 contract going off the board last week and May stepping in to be the new front month. May finished the week over a point closer to the spot VIX index as VIX rose over 10% and the May future only gained about 1.6%.

VIX Futures Curve

About 45 minutes into the trading day there was a volatility trader looking out to June and expecting VIX to remain below 18.00 or at least be under 18 at June settlement. The trader sold 9,200 VIX Jun 18 Calls at 1.63 and then purchased 9,200 VIX Jun 26 Calls for 0.63 and a net credit of 1.00. The payoff diagram below shows the result at expiration along with closing prices for VIX and the June VIX future.


June VIX futures finished the week at about a 3 point premium to the spot index. Remember that VIX option prices are derived from a level closer to the corresponding future than the spot index so VXM5 near 17 results in a 1 to 7 reward to risk trade with the spot index below 14.00.

Last Week in Volatility Indexes and ETPs – 4/20/2015

Despite an ugly Friday both VXST and VIX remains pretty low relative to recent levels. I again included the 2014 average closing levels to the chart below. This inclusion isn’t so much about noting VIX is lower, but that VXV (3 month volatility) moved above the 2014 average and VXMT (6 month volatility) remains higher than what was the average for last year.

Term Structure for Blog

Do note that VXV got some love this past week in a discussion by Adam Warner which then led to a story on CNBC.   The links below can take you to either story –

“Does the VIX Signal Indicate Trouble Ahead?” — Adam Warner, Schaeffer’s Investment Research
“This Obscure Indicator is a ‘Significant Concern’” — CNBC

In the ETN space the long funds put up a small gain while the short funds lost a little more than the gains seen for VXX.  The small rise in VXX is attributed mostly to the May VIX future which was over 90% of the composition of VXX for most of last week.  Despite the 10% gain in VIX, the May contract was up about 1%.

Index ETN Table

A VIX for the Energy Sector

As oil prices have fallen, many investors with exposure to energy companies have wisely kept an eye on VIX. But there is another volatility benchmark – one more suited to energy equity investments – which investors should also watch carefully: VXXLE.

VXXLE is the ticker for the CBOE Energy Sector ETF Volatility Index. This index has same methodology as VIX. However, instead of tracking S&P 500 options, it is based on options tied to the Energy Select Sector SPDR® Fund, a popular ETF known by its ticker, XLE.

VXXLE measures the 30-day implied volatility of XLE and by extension, the index it follows, the S&P Energy Select Sector Index. Just as VIX is inversely correlated to the S&P 500, VXXLE is inversely correlated to XLE, as the chart below shows (3-year correlation = -0.66).


Even though CBOE does not yet offer derivatives based on VXXLE, this index still has great value as a benchmark, particularly when coupled with other related information. As an example, some analysts compare the changing value of a volatility index with the price-to-earnings ratio of the companies in the underlying index.


Analysts say that when such a ratio is high, the market may be complacent and a prudent investor might want to scale back their exposure. On the other hand, if this ratio moves to a lower range – indicating prices are relatively low and anxiety is high – a “crash” may be under way and there could be an opportunity to take a contrarian position.

In the case of VXXLE, this ratio has moved drastically over the past year. As the chart above shows, this ratio has gone from its 3-year high to a record low. And in line with this, the S&P Energy Select Sector Index has tumbled, at one point losing approximately 25% of its value.

If you want to use VXXLE to inform your investment decisions, you can access more information on Chicago Board Options Exchange’s website. Also, a tutorial on VIX’s methodology, which VXXLE shares, can be found here.

*Author’s note: Due to data limitations, the second chart uses the P/E for the S&P 500 Energy Sector Index instead of the S&P Energy Select Sector Index. These indices share the same constituents but use different weighting schemes.

Last Week in VIX – 3/16 – 3/20

Last week VIX experienced the second biggest week over week percentage drop for 2015. The largest move lower occurred the week before the three day Martin Luther King holiday weekend so that one may need to be given an asterisk.   However, VIX going back to the tweens last week should not be ignored as an indication of a new round of equity market complacency sinks in. Someone needs to tell that to the April VIX futures which remain at a pretty high premium (over 3 points) relative to the spot index despite Janet Yellen making the word safe for stocks again last week.

VIX Futures

I paid close attention to the trading activity in the VIX option market on Wednesday and came across a ‘before’ and an ‘after’ trade worth mentioning. What I mean by this is a big VIX trade from before the FOMC announcement and then after the announcement. First the before.

A couple of hours into the trading day and before the FOMC announcement there was a seller of both VIX Apr 17 Puts at 1.31 and VIX Apr 17 Calls at 1.81 who simultaneously purchased the same number (20,000 for the curious readers) of VIX Apr 25 Calls for 0.54 and a net credit of 2.58. The net result is a profit at April expiration as long as settlement falls between 14.42 and 19.58. Two out of the three settlements have fallen in this range in 2015 with January being the outlier at 20.97.

VIX PO Short Apr 17 Straddle Long Apr 25 Call

After the announcement a trader came in and purchased 30,000 VIX Apr 16 Calls at 1.61 and 30,000 VIX Apr 16 Puts at 1.04 for a net cost of 2.65 or $7.95 million after applying the $100 multiplier and size of the trade. This trade is basically the opposite outlook of the ‘before’ trade above. If held to expiration, April VIX settlement would need to be above 18.65 or below 13.35 for this trade to turn a profit.

VIX PO Long Apr 16 Straddle

Last Week in Volatility Indexes and ETPs – 3/16 – 3/20

I’m repeating the alteration I did last week to the term structure chart below. Instead of a week over week comparison I show the closing levels for VXST, VIX, VXV, and VXMT relative to the average levels in 2014. Note that near term volatility has thrown in the towel, but concern about a potential downturn for the equity market persists in the three and six month time frames. VIX Curves

Longer dated volatility is still elevated, despite dropping last week in sync with VXST and VIX. A 2.66% rally in the S&P 500 will do that to any equity market volatility index. What also took it on the chin were the long oriented volatility exchange traded funds. VXX and the unleveraged funds lost over 8% and the two leveraged long funds, UVXY and TVIX, both gave up over 16%. This leads me to a massive trade I came across from Friday which is discussed just below the following table.

VIX Table

On Friday one big trader put on a position that expects to profit from the negative roll yield that impacts the performance of one of the leveraged long ETPs.   There was a buyer of over 100,000 UVXY Jan 2017 9 Puts who paid 5.10. The exact amount of the block trade came to $53,785,620, but it appears they purchased over 120,000 over the course of the day which puts the number closer to $61 million.  Either way, it’s a big trade…

In order for this trade to work out UVXY needs to be under 3.90 come January 2017 expiration. That’s a move lower of about 75% from Friday’s close which is highlighted on the payoff diagram below. 75% may sound like a stretch, but this is not out of the realm of possibility as UVXY lost just over 62% in 2014.

UVXY PO Diagram

33 Speakers at RMC Cover Skew, Vol of Vol, Options-Based Funds, etc.

At the 31st Annual CBOE Risk Management Conference (RMC) on March 4 – 6, 2015 in California, thirty-three expert speakers (see list below) spoke on a variety of subjects, including skew, volatility of volatility, and a new 2015 study with the first-ever list of publicly available list 119 Options-Based Funds.

Speakers noted that Extended Trading Hours – beginning at 2 am Chicago time – commenced on March 2 for VIX options, and commence on Monday, March 9 for SPX options.


Below are 14 charts on some of the topics covered by the speakers.

Speakers noted that the CBOE VIX of VIX Index (VVIX) has risen in recent months.

Ch-2015-03-05-1415-VVIX  VIXCh-2015-03-06-1100-Table VIX Index & VIX futuresCh-2015-03-06-1100-VIX Index & VIX futures

VIX has been in contango for most days in each year since 2008. VIX was in backwardation about 111 days in 2008, 2 days in 2012 and 33 days in 2014.

In 2014 the average daily close for the CBOE Volatility Index (VIX) was 14.2 for the second year in a row, and the CBOE SKEW Index had its highest-ever average daily closing value of 129.8.

Ch-2015-03-06-0800-SKEW IndexCBOE now offers futures on the CBOE/CBOT Treasury Note Volatility Index (VXTYN), and I believe interest in and concerns about interest rate volatility could heat up in the next year or two.

Ch-2015-03-05-1545-VXTYN & Int Rtaes since 2003

Keith Black presented a groundbreaking new study — “Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs” authored by Keith Black and Edward Szado — that analyzed SEC-regulated investment companies that focus on use of exchange-listed options for portfolio management (options-based funds).

Ch-2015-03-05-1400-Options-based Funds Number Growth




008-AnnualizedRet-BXYCh-2015-03-05-1400-RisK Return BXM BXYGROWTH IN VOLUME

SPX options, VIX futures and VIX options all had record volume years in 2014, and many speakers discussed volume and liquidity trends. Keith Black noted that the notional value of the average daily volume for SPX options was around $172 billion in 2014.

Ch-2015-03-04-1530-SPX options volume

VIX futures a d v


1 Arie Aboulafia Senior Portfolio Manager, Capstone Investment Advisors, LLC
2 Brandon Bates Portfolio Manager, BlackRock
3 Keith Black, Ph.D., CAIA, CFA Managing Director, Curriculum and Exams, Chartered Alternative Investment Analyst (CAIA) Association
4 Benjamin Bowler Co-Head of Global Equity Derivatives Research, BofA Merrill Lynch
5 David Burchmore Portfolio Manager, Ontario Teachers’ Pension Plan
6 Vijoy Paul Chattergy Chief Investment Officer, Employees’ Retirement System of the State of Hawai’i (HIERS)
7 Andrew Claeys, CFA Director of Trading, Analytic Investors
8 Dean Curnutt Chief Executive Officer, Macro Risk Advisors
9 Bruno Dupire Head of Quantitative Research, Bloomberg
10 Mike Edleson Chief Risk Officer, The University of Chicago
11 Benn Eifert, Ph.D. Portfolio Manager, Mariner Investment Group
12 Rocky Fishman CFA, Equity Derivatives Strategy, Deutsche Bank Securities Inc.
13 David Goerz Former EVP – Head of Investment Strategy & Risk Management, Alberta Investment Management Corp.
14 Jason Goldberg Portfolio Manager, PIMCO
15 Krag “Buzz” Gregory Equity Derivatives Strategist, Goldman Sachs
16 Søren Grooss Portfolio Manager, PKA
17 Samuel Kadziela Director of Education, Chicago Trading Company, LLC
18 Zachary Karabell President, River Twice Research
19 Kambiz Kazemi Portfolio Manager, Picton Mahoney Asset Management
20 Marko Kolanovic Global Head of Quantitative and Derivatives Strategy, J.P. Morgan
21 Ken Kwalik Portfolio Manager, Investment Management Division, Goldman Sachs
22 Boris Lerner Head of US Quantitative and Derivatives Strategy, Morgan Stanley
23 Berlinda Liu Director of Index Research and Design, S&P Dow Jones Indices
24 Defina Maluki Portfolio Manager, Barclays Wealth and Investment Management
25 Andy Nybo Principal, Head of Derivatives, TABB Group
26 Yoshiki Obayashi Managing Director, Applied Academics, LLC
27 Donald Pierce, CFA Chief Investment Officer, San Bernardino County Employees’ Retirement Association
28 Edward L. Provost President & Chief Operating Officer, CBOE Holdings, Inc.
29 Amna Qaiser Portfolio Manager, Goldman Sachs Asset Management
30 Olivier Sarfati Head of US Trading Strategies, Citigroup
31 William Speth Vice President, Research and Product Development, CBOE
32 Basil Williams Co-Chief Investment Officer, Mariner Investment Group
33 Mahsa Zeinali Chief Operating Officer, Rosen Capital Advisors

In addition, Edward Szado Assistant Professor of Finance, Providence College, was scheduled to deliver a presentation on a 2015 paper on Options-based Funds, but his arrival was delayed by the snowy weather in New England.


Here are links to webpages with more information –

  • More than 30 volatility indexes
  • CBOE SKEW Index
  • Term Structure updates
  • White Papers on index options
  • CBOE Risk Management Conference (upcoming conferences are planned for Switzerland in September and Hong Kong in December)

VIX Last Week – 2/23 – 2/27

The S&P 500 hardly budged on a week over week basis and VIX drifted lower. The March future drifted lower basically in sync with the index, but is still at a health premium relative to the index. I’m attributing that to the pending employment numbers coming out next week. I need to do a study and see what happens with that spread on the weeks that we get the employment report. I wouldn’t be surprised to see the gap narrow post-employment as there is often no pending market moving event until after expiration.

VIX Futures Curve

On the trading front there were two trades that appear to expect VIX and the March contract to drift or stay lower. Early in the day a trader came in and sold 4000 VIX Mar 18 Calls at .76 and bought the same number of VIX Mar 21 Calls at 0.44 for a net credit of 0.32. Late in the day there was a buyer of a put spread who purchased 3000 VIX Mar 14.50 Puts at 0.43 while selling 3000 VIX Mar 13.50 Puts at 0.12 for a net credit of 0.31. The maximum reward for both trades is almost equal but the risk profit is very different. This shows up in the payoff diagram below –


Note that for the call spread the maximum potential loss is 2.69 if VIX is over 21.00 at expiration or a potential profit of 0.31 versus a loss of 2.69. Of course a lot needs to go wrong for the result to be a maximum loss. The risk for the put spread is only 0.68, but this trade result would occur if VIX is over 14.50, which is where it has been for most of 2015.


  • Recent Comments

  • Tags