Weekend Review of Volatility Indexes and ETPs – 6/25/2017

VXST was slightly higher while the rest of the SPX related volatility indexes dropped last week.  All moves were relatively small as we have truly entered the summer doldrums, at least for broad based index volatility.


There’s very little exciting on the table below.  TYVIX bumped up slightly, but is still at very low levels.  VVIX remaining over 80.00 is interesting as traders may continue to take advantage low VIX to get long volatility exposure through buying calls or spreads that put some upward pressure on OTM calls.

VXX Table 06232017

We are at almost the mid-point for 2017 and short volatility has ruled the year.  SVXY is up over 80% while VXX is down a little over 50%.  When a fund loses 50%, you need a 100% gain to get back to flat.  Don’t count VXX out for the year as the underlying index gained over 100% in October 2008.  I’m not predicting that sort of action again this year, but just noting it has happened in the past.

VXX SVXY UVXY 06232017

I mentioned equity index volatility was tame, but that doesn’t mean all volatility was boring last week.  Headline price action in the oil market resulted in nice gains for OVX and VXXLE.  VXGS was the leader of the pack last week which I’m going to attribute mostly to earnings, but also to some bullish option activity that keeps popping up in the financial sector.

Vol Indexes 06232017

Any strength in VXX this past week came on Tuesday.  Mid-day VXX was around 12.95 and a bear put spread was executed when the VXX Jun 23rd 13.00 Puts were purchased for 0.31 and the VXX Jun 23rd 12.50 Puts were sold for 0.07 resulting in a net cost of 0.24.

VXX PO 06232017

This trade was nearly perfect as VXX finished the week at 12.54, just 0.04 above the short strike.  Of course, it is very possible our trader exited this position early, but even if that were the case I bet they were happy with the outcome.

Weekend Review of VIX Futures and Options – 6/18/2017

VIX gave volatility bulls a little hope on Monday rising to the highest intra-day level since VIX was receding from the news flow that followed the firing of Comey by Donald Trump in the middle of May.  However, as is the norm, VIX dropped and worked lower with the curve following in suit.

VIX Table TS 06192017

As Monday was the only day of real strength for VIX and the June VIX futures.  One trader took advantage of that by selling an out of the money call spread.  Late Monday as VIX was near 11.65 and the June VIX futures were at 12.05 a trader sold the VIX Jun 15 Calls at 0.32 and then purchased the VIX Jun 18 Calls for 0.19 taking in a credit of 0.13.  As long as standard June VIX settlement on the open next Wednesday is below 15.00 this trade will realize the maximum gain equal to the credit.

VIX PO 06162017

Weekend Review of Volatility Indexes and ETPs – 6/18/2017

As the week came to a close VXST which measures 9-day volatility expectations took a dive.  Hence the big drop on the left side of the VXST – VIX – VXV – VXMT diagram below.


TYVIX finished the week below 4.00 which was a first for 2017, but not outside of the long term historical range.  I checked the market expectations for the next FOMC meeting in late July and right now we have a 100% chance of nothing happening.  That much certainty probably justifies such a low volatility expectation.  Skew worked a little bit higher last week and VVIX was little changed which can be considered indications that there is at least some concern about the future direction of stocks.

VXX Table 06162017

The long funds continue to experience a dreadful year in 2017 while SVXY will probably be near the top of many mid-year performance charts in a couple of weeks which always brings new (neophyte) investors into this space.  Of course the first 20% pullback will scare many away at what has historically been the best time to purchase a short volatility fund like VMIN, SVXY, or XIV.

VXX SVXY UVXY 06162017

With a couple of small exceptions the volatility indexes quoted by CBOE were mostly lower last week.  I see no pattern in the mix of indexes that rose so it’s tough to attribute the green changes below to anything other than market randomness..

Vol Index Prices 06162017

I guess the trade below is a version of Monday morning quarterbacking (post-expiration perfect trade fitting?).  The only life VIX really experienced last week came on Monday, which also pushed VXX higher for the day.  As the end of the day approached a trader came in and purchased 100 VXX Jun 16 13.50 Puts for 0.40 combined with selling the same number of VXX Jun 16 13.00 Puts for 0.14 and a net cost of 0.26.  I admitted as I started discussing this trade that I was benefiting from hindsight and we can see this trade was perfect based on where VXX closed Friday.

VXX PO 06162017

Weekend Review of VIX Futures and Options – 6/11/2017

VIX was higher by about 10% last week, but that did not have much of an impact on the rest of the term structure.  The futures were mixed which can be attributed to just how steep the VIX curve was going into the week.

VIX TS Table

Before things turned to the upside on Friday we experienced the lowest level for VIX since 1993.  The table below ranks the lowest inter-day lows for VIX since 1990.  Note Friday ranks 6th and 4 of the 10 on the list occurred this year.

A couple of bullish VIX trades hit the pit right around the market close on Friday.  First, there was a seller of a June put spread that is looking for VIX to achieve 11.00 and remain above that level (if held to expiration).  Specifically there was a seller of 1000 of the VIX Jun 21st 11 Puts at 0.35 who purchased the VIX Jun 21st 10 Puts for 0.08 and a net credit of 0.27.  The risk to this trade involved VIX back down in the single digits which would result in a loss of 0.73.

VIX PO1 06092017

The other trade is probably more dynamic and was initiated at no cost.  A trader purchased 3000 VIX Jun 21st 14 Calls at 0.36 and then sold 4500 of the VIX Jun 21st 17 Calls for 0.18.  Two results show up on the diagram below.  The curved line is with 3 trading days to expiration and the other shows expiration, which is only 7 trading days and an overnight away.

VIX PO2 06092017

Note that a move for VIX or more specifically the Jun VIX futures to the 13 to 19 range results in a profit for this trade.  Since VIX tends to spike and regress pretty quickly any move to this range would prompt many traders to try to take partial of full profits.

Weekend Review of Volatility Indexes and ETPs – 6/11/2017

That little bump in VXST that shows up on the far left side of the diagram below can be attributed to Friday afternoon activity.  VXST rose 0.75 Friday while VIX was up 0.54.  Shorter dated SPX option pricing is used to calculate VXST than VIX.  It may be the weakness Friday afternoon in large cap tech stocks may have traders worrying about the direction of the stock market over the short term.


Several things pop out at me on the table below.  VMAX had a nice week rising 2% and outpacing the other long unleveraged VIX related ETPs.  SKEW is fairly high, which with VIX rebounding a bit is a more worrisome reading than when VIX was under 10.00 or working its way down there.  VVIX rising with higher VIX is an indication that demand for VIX calls seems to be increasing.  Finally, a different theme, but it is interesting to see the weakness in EVIX, which is based on VSTOXX futures, that accompanies the UK election coming to a conclusion at the end of last week.

VXX Table

On Friday the Nasdaq-100 (NDX) was down 1.8%, the S&P 500 was down only 0.08%, and the Russell 2000 (RUT) gained 0.43%.  This is a heck of a divergence and this shows up some in the table below with VXN coming in as the leading gainer among volatility indexes quoted by CBOE.  In fact Friday was the 9th biggest single day gain for VXN on record.  Note the volatility indexes that represent option activity in two big NDX stocks are high up on the list as well.    At the bottom of the list is BPVIX followed closely by the other currency related volatility indexes.

Vol Indexes 06092017

VXX and UVXY were both up slightly last week.  However, 2017 has been anything but kind to anyone long volatility.  On the flip side SVXY up over 70% on the year.

SVXY UVXY VXX 06092017

Finally, I came across a pretty interesting SVXY trade from late Friday.  With SVXY at 154.26 someone sold 100 SVXY Jun 16th 131 Puts at 1.15.  That’s it, a pure sell of put options.  Normally I shy away from discussing such trades, but SVXY is a different animal.  When you sell puts you get the obligation to buy the underlying.  The long term trend for short volatility funds is up, with some bumps in the road.  Taking on the obligation to buy SVXY this coming Friday at 131.00 a share means purchasing the fund if it drops 15% or more next week.  It is very possible for SVXY to lose 15% in a week or even much more.  However, SVXY does make sense as a buy on a drip and this trade accomplishes just that with the result of not buying being a profit equal to the 1.15 credit taken in Friday afternoon.

VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery

On June 1st the CBOE Volatility Index® (VIX®) closed at 9.89. June 1st marked only the 14th day on which the VIX Index closed below 10 (its price history begins in 1990). Six of the 14 days on which the VIX Index closed below 10 occurred in 2017 (see Exhibit 1 below for a list of all 14 dates).

In addition, on June 1st the CBOE SKEW Index closed at 124.55, a relatively high level that indicated strong demand for SPX put options that could help protect against a severe downturn in the stock market.


On May 21 through 24 I listened to several outstanding speakers 70th CFA Institute Annual Conference in Philadelphia. Speakers’ remarks that were among the most interesting and relevant to me were on the topic of the current levels of volatility and the VIX Index. I found the following volatility comments of two speakers particularly intriguing —

  • In a Q&A session on May 21, Richard H. Thaler, the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the Booth School of Business, University of Chicago, answered a question on volatility by noting that the current low level of the VIX Index was the biggest [financial] mystery of our time, in light of the fact that we live in a time of great uncertainty, regardless of one’s political views, and whether or not one is supportive of the program of the current U.S. President. Professor Thaler said we face surprises when we read early morning tweets, and that when animals are afraid, they often freeze up.
  • In her prepared remarks on May 24, Abby Joseph Cohen, CFA, Advisory Director and Senior Investment Strategist, Goldman Sachs & Co., noted that realized volatility for major indices sharply declined following Euro-zone worries in late 2011, but realized volatility is now increasing. In answer to a question about concerns for future volatility, Ms. Cohen said she was even more concerned about the potential for future higher bond market volatility when compared to future equity market volatility.

In addition, minutes from the Federal Reserve in early 2017expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook for … policy initiatives …”


The CBOE Volatility Index (VIX) is a measure of market expectations of 30-calendar-day volatility conveyed by S&P 500 Index (SPX) option prices. The VIX White Paper notes that the VIX Index estimates expected volatility by averaging the weighted prices of SPX puts and calls over a wide range of strike prices.  The selected options are out-of-the-money SPX calls and out-of-the-money SPX puts centered around an at-the-money strike price. I recently have heard comments and questions on the topic of why the VIX Index recently has been lower than its long-term average, and I also have been asked if there continues to be interest in hedging of downside risk in stock portfolios. The average of the daily closing values on the VIX Index was 19.7 in the 27 years from 1990 through 2016, but only 11.8 year-to-date in 2017 (through June 1).



While some commenters point to macroeconomic factors and Fed policies that could impact the levels of VIX, below are three discussion points (re: skew, historic volatility, and term structure) with charts that help better explain the relatively low level of the VIX Index.


While the VIX Index recently has been below its long-term average, there still has been strong demand for use of stock index options to hedge severe downturns in the stock markets.

So far in 2017, there usually has been a relatively high volatility skew for SPX options, in that the implied volatility for the out-of-the-money (O-T-M) SPX put options usually has been much higher than the implied volatility for the at-the-money (A-T-M) SPX options. Bloomberg’s estimates average 30-trading-day implied volatilities for SPX options in 2017 were (through May 25): (1) about 31.7 for SPX options at 80% moneyness (this implied volatility could apply to SPX protective put options that are 20% out-of-the-money), and (2) about 9.2 for SPX options that are at 100% moneyness (or at-the-money).


A metric that investors can use to track the relative demand for disaster protection is the CBOE SKEW Index, which is calculated from weighted strips of out-of-the-money S&P 500 options, and rises to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence. If there were no tail risk expectations, the SKEW Index would be equal to 100.


The averages of the daily closing values of the SKEW Index were 118.4 in the 27 years from 1990 through 2016, and 134.5 in 2017 (through June 1).


While some people have recently questioned as to how the VIX Index values could be in a “low” range from 9.7 to 12 on most days in the past month, one should note that the historic volatility of the S&P 500 Index recently has been even lower than the VIX. When compared to SPX historic volatility, one could argue that VIX has not necessarily been “low.” The averages of daily closing values in May (through May 30) were 10.9 for the VIX Index, 7.4 for the 30-trading-day historic volatility of the S&P 500 Index, and 4.6 for the TYVIX Index (an index that reflects the expectations of interest rate volatility; in her remarks, Abby Joseph Cohen expressed concern about the possibility for a spike in interest rate volatility).




For those folks who ask about the “low” level of the VIX Index, one response would be to say that folks are welcome to explore the prices of the tradable VIX futures. As shown in the VIX futures term structure chart below, the quoted prices were 10.59 for the VIX spot index, and the quoted prices for the VIX futures (which are based on the forward values of the VIX Index, and reflect expectations of 30-day volatility at future dates) ranged from 10.90 for the VIX futures expiring on June 7, to 17.40 for the VIX futures expiring on February 14, 2018.



For investors who are interested in equity portfolio protection with SPX options at times when price-earnings ratios are relatively high, and the VIX Index is at relatively low levels, four benchmark indexes that could be explored are:

  • CBOE S&P 500 95-110 Collar Index (CLL) – purchases stocks in the S&P 500 index, and each month sells SPX call options at 110% of the index value, and each quarter purchases SPX put options at 95% of the index value. www.cboe.com/CLL
  • CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ) – track the performance of a hypothetical option trading strategy that 1) holds a long position indexed to the S&P 500 Index; 2) on a monthly basis buys a 2.5% – 5% S&P 500 Index (SPX) put option spread; and 3) sells a monthly out-of-the-money (OTM) SPX call option to cover the cost of the put spread. www.cboe.com/CLLZ.
  • CBOE VIX Tail Hedge Index (VXTH) – buys and holds S&P 500 stocks, and also often buys 30-delta call options on the CBOE Volatility Index (VIX). www.cboe.com/VXTH.
  • CBOE S&P 500 5% Put Protection Index (PPUT) – strategy that holds a long position indexed to the S&P 500 Index and buys a monthly 5% out-of-the-money (OTM) S&P 500 Index (SPX) put option as a hedge. www.cboe.com/PPUT.


For people who ask me about the VIX Index recently being much lower than its long-term average, I suggest that they look at the following three factors to gain a fuller picture of implied volatility, and the interest in and costs for hedging strategies –

  • The SPX skew and the related SKEW Index have been relatively high in recent years, and there still is strong demand for hedging severe downside risk;
  • The VIX Index generally has been higher than the historic volatility of the S&P 500 Index in 2017 (using this comparison, one could argue that the VIX has not necessarily been “low”); and
  • While the VIX Index was valued at 10.68 on the morning of May 30, the VIX futures term structure chart showed that most tradable VIX futures were priced higher than the VIX spot index.

Weekend Review of Volatility Indexes and ETPs – 5/28/2017

VXST closed Friday at an all-time low of 7.60 which sounds impressive until you hear that for VXST the history we have to work with only goes back to 2011.  I am going to make a bold prediction and say that VXST will move higher when the market reopens on Tuesday.  Read that as sarcasm as VXST has never followed a three-day weekend without moving higher.


After having a short period of upward movement, the VIX related funds gave back performance and then some last week.  The short funds resumed the stellar performance of 2017 with VMIN leading the pack by gaining over 10% on the week.  I find it interesting that SKEW, which often benefits from low VIX is not testing the 150’s.  I guess no one needs to mitigate tail risk going into the summer.

VXX Table 526

For 2017 UVXY is now down 75% while SVXY is up a little less than 70%.  There is always a divergence between the leveraged long and short VIX related ETPs, but this divergence is only 5 months into the year.  I may have to conduct a mid-year reset on June 30th.


The British Pound was the bright spot for the volatility space this past week, along with AMZN and GOOG.  Oil option volatility was also a bit higher, but otherwise implied volatility was mostly lower.

Vol Indexes 526

On Wednesday May 17th VIX had a short-lived day in the sun and VXX was right there sharing the spotlight.  We all know everything in the markets returned to what has been normal in 2017, but at the time VXX had run to 16.10 from 13.60 in a single day.  As that day came to an end a trader put on what now looks like a pretty smart bear put spread.

With VXX at 16.10 there was a buyer of the VXX May 26th 16 Puts for 0.84 who then sold the VXX May 26th 15 Puts for 0.31 paying 0.53 for a trade that needed VXX to finish this past week below 15.00.  We all know that is how things turned out and if the trader held on through this past Friday they scored a profit of 0.47 based on the payoff diagram below.

VXX PO 526

Weekend Review of VIX Futures and Options – 5/28/2017

VIX finished the week at 9.81, just a tad above the post 2008 lows put in earlier this month.  The June 2017 VIX cycle is five weeks long so there’s still plenty of time until June 21st expiration.  The result is one of the steepest curves a can recall in the six years of posting these weekend blogs.

VIX TS Table 5262017

Friday, about an hour into the trading day, there was an interesting bull put spread executed in the VIX pit.  With VIX at 9.80 and the June 7th VIX Future at 10.80 someone sold the VIX Jun 7th 11.50 Puts for 1.11 and the purchased the VIX Jun 7th 9.50 Puts for 0.05 taking in a credit of 1.06.  If held to June 7thexpiration the trade makes money as long as settlement comes in above 10.44.

VIX PO Corrected

This trade risks 0.94 to make 1.06 with the maximum potential loss coming if June 7th VIX AM settlement comes in below 9.50.  For me, the result here is a great example of how VIX Weeklys options can be used and how traders can take advantage of what they make believe is VIX at unsustainably low levels.

Weekend Review of VIX Futures and Options – 5/21/2017

The term structure and payoff below does not do any justice to what those of us that focus on VIX and related markets this past week.  In fact, when the dust settled, all the standard futures were hardly changed on the week.

VIX Quotes Table 519

Just to record what did happen last week I made a second term structure chart that includes the close on Wednesday in addition to the Friday closing curves.

VIX TS Fri Wed Fri

As Wednesday was one of the biggest moves for VIX to the upside in several months, there were a few brave traders that chose to take the other side of the move.  Just minutes before the very busy day came to an end there was a trader that sold about 5,000 VIX Jun 12.50 Calls for 2.37 who purchased the VIX Jun 19.00 Calls at 0.93 for a net credit of 1.44.  The payout below shows how this trade works out if held to expiration along with where VIX and the June VIX futures finished the day on Wednesday.

VIX PO 519

The June futures were at 14.25 and VIX at 15.59 to finish up Wednesday.  However, as we know, when the week came to an end both were much lower.  So far so good on this one.

Weekend Review – Volatility Indexes and ETPs – 5/21/2017

The week over week VXST – VIX – VXV – VXMT curve moved higher and appears to have done so in a very parallel fashion.  Since the week over week change doesn’t do the actual activity justice so I added the Wednesday closing curve to the graphic below.


I was honestly a little surprised at how little the S&P 500 dropped on a week over week basis and double checked the number.  I made a joking prediction Thursday morning that we would retrace the Trump Dump from Wednesday with in a week, that prediction is one good day early next week from being correct.  The long volatility ETPs did well and the short funds gave up some of the ground gained this year, but still hold a solid lead as the next chart will show.

VXX Table 519

VXX and UVXY got nice bumps in the middle of the week and SVXY got hit.  All fund changed course on Thursday and Friday, but not enough to result in a losing week for the long funds.


The Brazilian equity market came under pressure last week and the result was a huge move in VXEWZ.  Also, currency volatility was much higher across the board.


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