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.


Last Week in Emerging Market Volatility – 6/8/2014

The emerging market space was strong last week and the iShares MSCI Emerging Markets ETF (EEM – 43.56) rose over 2%. This gain was despite a mid-week hiccup and now EEM is up over 4% on the year. The VXEEM chart below reflects EEM gapping down on Wednesday and then recovering to put up a pretty strong week.



Brazil regained momentum with the iShares MSCI Brazil Capped ETF (EWZ – 47.82) gained almost 3% last week which puts the fund up just over 7% for the year.   This gain came from a big move on Friday that was based on a lack of confidence in the current president of Brazil Dilma Rousseff. That reminds me of stocks rallying when the CEO of a company resigns.


The volatility curves both shifted slightly with the VXEWZ curve showing a little bit of a twist. The index and June futures dropped while there was a slight gain in July, August, and September contracts.  Finally, since all the rage is low volatility I did some quick research on VXEEM and VXEWZ – the all time lows for both (going back to 2011) was set on February 19, 2013 with VXEEM closing at 15.00 and VXEWZ closing at 16.67.


Last Week in Volatility Indexes at ETPs – 6/8/2014

I awoke this morning and like all of us that are glued to their smartphone I checked email before getting out of the bed. The first one I read had the subject title as WOW VIX. This blog is more like wow VXST, VIX, VXV, and VXMT (not very catchy as I write this, but you get the point).   All four of the volatility indexes that are based on SPX option pricing closed on all-time lows this past Friday. CBOE has historical data for VXST going back to 2011, VIX to 2004 (farther, but I like 2004 as a starting date), VXV to 2007, and VXMT from 2008.



The option space continues to see some pretty active trading despite low volatility. In fact the email I referred to in the first paragraph was an inquiry about methods of getting long since VIX it touching lows. Thursday over 1.2 million VIX options traded.

The June VIX future is starting to catch up with the low VIX and July is following along as well.  Both June and July dropped around 10% last week which resulted in similar pressure on VXX, TVIX, and all the long oriented volatility ETNs and ETFs. After starting 2014 with a sluggish pace the short funds are starting to shine as they did in 2013. Both SVXY and were up a tad over 10%. XIV is now up 24.78% for 2014 and SVXY is 24.66% higher for the year.

Options ETNs

Last Week in VIX – 6/1/2014

I was traveling a bit last week and not 100% focused on the markets.  After my crack intern emailed me last week’s data for the weekend blogs I was pretty surprised to see that the high for VIX last week was 11.86.  VIX below 12 usually gets people’s attention, but I guess that is becoming old hat.  However, seeing that we never broke above 12 got me digging into the data.


It turns out the last time we had VIX below 12 for a full week was in late February 2007.  The specific date was February 23, 2007 and VIX closed the week at 10.58.  However, there were several weeks leading up to that date in February where VIX remained under 12.  I switched from weekly data to daily data and found that for 31 trading days (January 11, 2007 to February 26, 2007) the daily high for VIX remained below 12 as can be seen in a very dull daily price chart below.

VIX 2007 Daily Prices

By the way if I added one more day to this chart you would see that on February 27, 2007 VIX ran up to 19 during the day and closed at 18.31.  The point behind this is that VIX can continue to plod along at low levels, but a 50% move can always be just around the corner.

The most excitement on the VIX curve may be attributed to the June contact which dropped a little over 4% on the week.  The best explanation for this is that as VIX stayed low, the June VIX future just moved a bit lower as time to expiration starts to become an issue.


Last Week in Short-Term Volatility – 6/1/2014

One of the great things about the financial markets is that there are numbers everywhere.  Millions of market participants make decisions throughout the work week that influence these numbers and the result is a market consensus based on where the numbers end the day , week, month or year.  What that should mean is that numbers never lie, but I think in the case of VXST rising last week the number may be fudging the real story.



VXST rose from an all-time low last Friday of 9.49 to 9.73 this week.  However for the spot index three day weekends cause a sort of extra headwind that I have studied and written about extensively in this space.  I haven’t been able to fully quantify the extra three day weekend pressure, but it is there and the 0.24 rise in VXST is probably less than the rebound that comes to VXST after a three day weekend.



Finally, we get an employment report this coming Friday which is one of those known unknowns that can result in extra market volatility.  I’ll be completely focused on VXST later this coming week to see how the index and futures anticipate and react to the jobs numbers.

Last Week in Volatility Indexes and ETPs – 6/1/2014

The S&P 500 closed at an all-time high (yawn) on Friday, but the volatility curve shifted higher as well.  Volatility indexes levels are relative and VXST, VIX, VXV, and VXMT are all at very low levels.  Theoretically these indexes can go to zero, but they have levels where it becomes difficult for implied volatility to go much lower.  That’s where we are right now for the four volatility indexes that derive volatility measures from the S&P 500.  Hence the slight moves higher even with the S&P 500 achieving a new record.



In the ETP space the long oriented funds suffered a drag from the June VIX future which was down over 4%.  The June contract had a bigger influence than July this past week.  The weighting is always shifting and come Monday morning June will be about 60% of the fund and July will comprise around 40%.  By next Friday July should be the heavier weighting for VXX and the other funds.

Options ETPs

Speaking of VXX there was a trade that popped up on Thursday that caught my eye.  Late in the day there was a buyer of over 5,000 of the VXX Jun 32 Puts @ 0.36.  VXX finished Thursday at 33.64 and this trade appears to be based on the outlook for a low VIX and a constant drift lower for the June and July VIX futures contracts over the next couple of weeks.



Last Week in Gold and Oil Volatility – 6/1/2014

Oil futures dropped a couple of dollars last week to settle in the 102 range and the response from USO volatility in the form of the CBOE Crude Oil Volatility Index (OVX – 15.61) was a small drop as oil may be range bound between 100 and 105.  Range bound markets, especially commodity oriented markets, result in a drop in expected volatility.



While oil was staying in a range, gold was breaking out (specifically down) of a range this past week.  In addition to the GVZ price chart below I put together a weekly chart of the SPDR Gold Shares ETF (GLD – 120.43) that illustrates a shift in the price of gold that occurred last week.GVZ PANote the chart below has a couple of reddish lines that indicate a couple of former support levels for GLD in 2014.  One was a support level that followed along as GLD moved up and the second is a support line in the 123 range that GLD had bounced off of a few times over the past few weeks.  Note the blue line, that’s where GLD has tested multiyear lows over the past few months.  If GLD gets down to the 116 range people will be watching closely as there is nothing in the form of support if that levels is breached.

Gold Weekly 05302014

The OVX curve was little changed along with the spot index moving down slightly.  The GVZ curve change was a pretty parallel shift and the June future is at a slight, but not dramatic premium considering the somewhat precarious story that is being told by the GLD price chart above.



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