Last Week in VIX – 3/9/2014

VIX got a day in the spotlight on Monday when the fear index rose 14% based on events going on in a country that 89% of Americans cannot find on a map (this like 99.7% of other statistics was made up).  The S&P 500 sold off early and then trudged higher on Monday.   The path higher for the S&P 500 continued into Friday where another record close was recorded.  Since VIX was recovering from a visit to the 16’s on Monday the week over week result was basically unchanged despite the S&P 500 gaining 1.00%.  Do note on the chart below that March is at a pretty nice premium relative to the spot index.  VIX March futures and options expire on the open on Tuesday, March 18th – this is a function of there being a market holiday on April 19th this year.  Keep in mind we have six trading days left for March VIX contracts and only one trading day after next weekend.


Last Week in Russell 2000 and Nasdaq-100 Volatility – 3/9/2014

The S&P 500 closed on a record high Friday afternoon, while record highs were set earlier in the week for the Nasdaq-100 and Russell 2000.  Despite the S&P 500 hitting another record to end the week, this is case of playing catch up as the S&P 500 performance in 2014 of up 1.60% is about half the performance from the technology heavy Nasdaq-100 (up 3.58%) and small cap Russell 2000 (up 3.30%).  The resulting performance for VXN saw a gain of about 1.5% while RVX dropped 4.41%.  The drop in RVX brings it down to being more in line with the spread between RVX and VIX that the market witnessed for most of 2013.

RVX option trading continues to gain some interest.  Right now the biggest open interest for March RVX options is in the RVX Mar 29 Calls with 300 contracts open and the open interest for RVX Apr 24 Calls is 200 contracts.


Last Week in Emerging Market Volatility – 3/9/2014

The emerging market space took a hit early in the week as the Russia weighting of just over 5% led to a drag in performance for the iShares MSCI Emerging Markets ETF (EEM – 39.52).  Out of curiosity I checked out the country weightings for EEM on the iShares website.  The weightings for the top 10 countries in the index appear in the table below.

EEM Weightings


Monday VXEEM was higher by as much as 15% before finishing the week slightly higher as tensions eased and EEM recovered.  The story continues to be mixed as far as Brazil goes.  The iShares Brazil Capped ETF (EWZ – 40.32) was down 1.63% on the week and VXEWZ was dramatically higher based on a wide variety of factors.  The VXEWZ futures are at a pretty significant discount to the index which may mean the time for VXEWZ in the low 30’s is not expected to be extensive.


Last Week in Gold and Oil Volatility – 3/9/2014

I often get questions from old school traders about VIX being an alternative to owning gold in times of crisis.  Before VIX options and futures were available the asset that would run up during periods of volatility was often gold.  Monday was one of those days where Gold reacted by moving to the upside with the SPDR Gold Shares ETF (GLD – 129.09) gapping open by about 2%.  The reaction out of the CBOE Gold Volatility Index was very similar with an opening level almost 5% higher than the Friday close.  This was just another great example of how GVZ will spike up when the price of gold has a big move higher or lower.  By the end of the week things appeared to have calmed down in the political arena and the wild action in the price of gold resulted in GVZ actually being lower on the week.

The price of oil also got a boost earlier in the week and the CBOE Crude Oil Volatility Index (OVX – 20.01) quickly ran up to 21.00.  By the end of the week there was still some heightened fear which can be translated as a new ‘risk premium’ entering the pricing of oil.  The result was OVX up almost 7% for the week and a parallel shift in the OVX curve with the March OVX future price actually climbing more than the spot index.


Last Week in VXST – 3/9/2014

Sometimes the graphics and tables included in the volatility reviews I post on the weekends do not tell the whole story.  This was definitely one of those weeks as on Monday we were greeted with the stock market under pressure (and volatility spiking) based on the situation in Ukraine.  To show the impact on the CBOE Short-Term Volatility Index and related futures markets I put together two charts and tables to better recap the week.  This first VXST term structure graph shows the one trading day change for VXST and four futures expirations that were trading on Monday morning.

VXST - Friday to Monday


VXST rose 23% and the contract that expired Wednesday morning (Mar 5) was up by 21%.  As we get more volatility events (and no I’m not encouraging Putin to invade anywhere else) we will get more of an idea how VXST and related futures will react to market surprises like Monday.

For the full week things look pretty dull.   After dropping 0.7% on Monday the S&P 500 was up 1.75% over the next four days to finish the week 1.00% higher.  The result was a drop in VXST which basically resulted in a parallel shift down for the the index and futures on a week over week basis.


Last Week in VIX Options and ETPs – 3/9/2014

On a week over week basis the four volatility indexes that are based on S&P 500 option pricing did not move too much.  All the excitement was on Monday so I added a line showing Monday’s closing prices for VXST, VIX, VXV, and VXMT to the mix.  Note the quick jump based on the surprise provided by Russian troops moving into Ukraine.  The markets were pretty surprised, but probably not as much as some people that live in the Crimea region.



By Friday afternoon calm seemed to have returned to the VIX market.  I was actually in the VIX pit during the middle of the afternoon on Friday and the traders had time to discuss the markets with a college group I was hosting.  I take that as an anecdotal sign that calm as returned to the equity volatility space.  Trading wise someone may not be agreeing with continued call.  About an hour before the close there was a buyer of the VIX Mar 17 / 20 Call spread that paid between 0.31 and 0.32 for over 60,000 of these bullish call spreads.  If held to expiration the payoff will look like this –

VIX 17 20 Call Spread

In the exchange traded product space trading activity followed the pattern of the week which was tumultuous at the beginning of the week and ending with a whimper.  Performance was mixed and compounding came into play a little due to the quick move up on Monday and then reversion to lower volatility over the course of the rest of the week.

Options - ETNs Table


Portfolio Managers to Discuss VEQTOR and Options Benchmark Indexes on March 17 – By Matt Moran

On March 17 at the 30th Annual CBOE Risk Management Conference in Florida, I will participate in panel discussion of Historical Performance of Options-Related Strategies with these three investment management experts –

  • Karl A. Schneider, CAIA, Vice President, State Street Global Advisors
  • Doug Kramer, Chief Executive Officer, Horizon Kinetics   
  • Theodore Samulowitz, Vice President – Portfolio Manager, Invesco PowerShares    

Topics to be covered by the panel include –

  • An analysis of benchmark indexes for covered call, cash-secured short put and collar strategies
  • Sources of enhanced risk-adjusted returns   
  • Comparing options-based strategies to stocks, bonds, and alternatives.

The panel’s investment managers all use benchmark indexes that write S&P 500 (SPX) options, or that purchase futures on the CBOE Volatility Index® (VIX®). The managers will discuss the performance of many of the indexes in the charts below.


Futures on the VIX began trading in 2004, and benchmark indexes subsequently were developed to use VIX futures and try to manage tail risk.  The panel will discuss indexes in the chart below.

Indexes Mar 2006   Feb 2014 Here are short descriptions of two of the indexes –

  • S&P 500 Dynamic VEQTOR Index (SPVQDTR).  The index is designed to provide broad equity market exposure with an implied volatility hedge by dynamically allocating between equity, volatility and cash. The index allows investors to receive exposure to the equity and volatility of the S&P 500 Index in a dynamic framework.
  • CBOE Low Volatility Index (LOVOL).   The index is a 40% / 60% blend of the CBOE S&P 500 BuyWrite Index (BXM) and CBOE VIX Tail Hedge Index (VXTH).  The resulting portfolio overlays long VIX calls and short S&P 500 calls over an investment in S&P 500 stocks.


As shown in the charts below, since mid-1988 the CBOE S&P 500 2% OTM Index (BXY) rose 1295%, the CBOE S&P 500 PutWrite Index (PUT) rose 1277%.  The panel will discuss why the BXY and PUT indexes had higher returns and lower volatility than indexes such as the S&P 500 and S&P GSCI.

Indexes Jun 1988 Feb 2014RMC

 For more information on the 30th Annual CBOE Risk Management Conference, please visit

Four Volatility Experts at CBOE on Wed. Mar. 26 – By Matt Moran

A panel discussion featuring four experts will survey the development and promise of volatility products. The panelists will include volatility product traders and users. The meeting will be held on Wednesday, March 26, from 5:00  to 7:00 p.m. at CBOE, 400 South LaSalle Street in Chicago. The four panelists will be:

  •  Mike Edleson, Ph.D., CFA,  Chief Risk Officer,  Office of Investments, University of Chicago,
  • Joanne Hill, Ph.D., Head of Investment Strategy, ProShare Advisors,
  • Jamie Tyrell, VIX Options Market-maker, Group One Trading, and
  • Krag “Buzz” Gregory, Ph.D., Managing Director, Goldman Sachs.

 Topics to be addressed include:

  • The tenth anniversary of the launch of VIX index futures on March 26, 2004,
  • The launch of new volatility indexes and products over the past decade,
  • Discussion of VIX contract performance in periods of market turbulence,
  • Discussion of contract design, pricing, and contango issues, and
  • Applications, including managing portfolio tail risk and enhancing risk-adjusted returns.

The moderator will be Matt Moran of CBOE.

Admission is $15 in advance (or $20 at the door) with light food and drinks provided. The doors will open at 5:00 pm., the panel discussion will commence at 5:30 pm and conclude by 7:00 pm.

Purchase tickets or reserve a seat (space available) via TicketLeap:–mar-26-2014.

The meeting is hosted by Chicago QWAFAFEW


 The volume trends are indicative of heightened interest in use of VIX-based products.

VIX opt and Fut volume

Last Week in VIX – 3/2/2014

The S&P 500 closed at (another) record high on Friday while VIX continued to hover closer to the mid-teens than to post-2008 lows.  VIX pricing in more risk relative to a record high market can be attributed to any number of factors.  There seems to be a consensus feeling that eventually the ratcheting down of bond purchases by the Fed will result in falling stock prices or a slowing of the economy (which could have the same result).  Also, I didn’t confirm the quote, but I heard in passing that Friday was the 48th new high over the last 12 months.  Regardless of the specifics, there seems to be a bit of extra nervousness despite a higher S&P 500.

Despite VIX dropping 4% on the week, all the futures moved up.  We do have an employment number coming up this Friday so it could be the VIX market is bracing itself for any potential market weakness that occurs in conjunction with the state of the job market in February.


Last Week in Russell 2000 and Nasdaq-100 Volatility – 3/2/2014

Both the Nasdaq-100 and Russell 2000 are now handily beating the performance of the S&P 500 in 2014.  Despite headlines highlighting the S&P 500 closing Friday at an all-time high, the winners this year so far is the tech sector with the Nasdaq-100 up just under 3% with the Russell 2000 (representing domestic or small cap stocks – depending on who you ask) up 1.67% this year. In the volatility space the CBOE Russell 2000 Volatility Index (RVX) continues to remain at a premium relative to the S&P 500 when compared to 2013.  In 2013 RVX was on average at a 3.90 premium to VIX and the widest that reading got was 6.12.  The average in 2014 has been over 4.30 and the spread has actually widened out to over 7 points.   On Friday RVX closed 5.52 points higher than VIX.  A final note on the spread – the March RVX Futures settled at a 4.65 point premium to the March VIX contract.  It appears the market doesn’t expect this spread to stay as wide as it is. VIX RVX


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