Volatility Indexes and ETPs Last Week – 11/22/2015

The shift for the VXST – VIX – VXV – VXMT curve was dramatic, but sort of what we have become use to in this buy on the dip culture.  VIX finished the week under 16.00, which voids a prediction that I had for the rest of the year.  I felt concerns about a December rate hike and the impact on stocks into 2016 would keep VIX elevated for the final few weeks of the year.


VXX and the other long funds came under pressure based on the drop in VIX and VIX futures last week.  The leveraged funds also got hit pretty hard as would be expected.  What stands out to me below is that VVIX remains pretty high despite the drop in VIX last week.  Demand has remained high reflecting demand for out of the money VIX calls.

VXX Table

On Friday one of the biggest VXX option trades seems to have a two-step mentality behind it.  In order for the trade to be successful VXX needs to run to the 30’s in the beginning of 2016.  The trade is a VXX calendar spread selling VXX Dec 18th 30 Calls for 0.21 and buying VXX Jan 15th 30 Calls for 0.56 and a net cost of 0.35.  The payout diagram below is based on pricing at the market close on December 18th.


Note how much VXX can ‘over shoot’ 30.00 and the trade still results in a profit.  However, I think the trader would be much happier if VXX runs up after December 18th but before January 15th as shown in the diagram below.  Assuming VXX finishes under 30.00 on December 18th and the short leg of this calendar spread expires out of the money, here’s the payoff for the long VXX Jan 15th 30 Calls at expiration.


Block Trades Using VIX Weeklys

Tomorrow is November VIX settlement, but that hasn’t stopped some short term VIX traders from putting on new positions, in fact it may have encouraged them to do some trading.

I ventured down to the trader floor late today to see what may be going on in the VIX Weeklys options set to settle on the open next Tuesday.  For those that know VIX well, you know that VIX futures and options normally settle on a Wednesday, 30 days before an expiration Friday.  However, December 25th is a Friday (and a holiday) so we have SPX options expiring Thursday the 24th of December.  Backtrack 30 days and we get a VIX Weeklys settlement on the open next Tuesday.

With about 30 minutes to go in the trading day I noticed the VIX Nov 24th 17, 18, 19, and 20 Calls all had traded about 7,000 contracts.  On the other side of the board over 17,000 VIX Nov 24th 16 Puts had traded.

I investigated further and it appears the Nov 24th 16 Puts traded in several lots over a 2 minutes period early in the day at an average price of about 0.28.  It appears it was paper selling.  The payoff on the open next Tuesday appears in the diagram below.  Note I’m only putting spot VIX on the diagram, which was at about 18.40 when the trade went off, since there’s a good chance this trade is to be held to settlement.

VIX PO 16 Put

The call trades were a little more perplexing.  But I did figure out that there was a seller of the VIX Nov 24th 18 Calls at 1.15 who purchased the VIX Nov 24th 20 Calls for 0.64 (net credit of 0.51 when VIX was at 18.00) and a seller of the VIX Nov 24th 17 Calls at 1.57 who paid 0.82 for the VIX Nov 24th 19 Calls (net credit of 0.75 when VIX was at 18.10).  For brevity sake I combined these two payouts into a single diagram below with the purple line representing the 17 – 19 spread and the red line below showing the payout at expiration for the 18 – 20 call spread.


It appears there were both bullish VIX and slightly bearish VIX players in VIX Weeklys today.  Also, it appears that everyone is happy with November 24th VIX settlement between 16.00 and 17.00.

Finally – if you want to know more about VIX Weeklys you can always visit www.cboe.com/vixweeklys

VIX Last Week – 11/15/2015

VIX managed a finish over 20 as Friday’s market action raised the level of concern among market participants.  You have to wonder if Friday August 21st and the follow through on the 24th is still fresh in trader’s minds.

VIX LT w Table

The short term curve flattened out which seems to be the norm when VIX move higher, since VIX Weeklys are relatively new.

VIX ST w TableMid-day on Friday while VIX was still under 20.00 (19.60 to be exact), there was a buyer of the VIX Dec 25 Calls who paid 1.10 and now has exposure that benefits from a repeat of late last August.  Less than two minutes later someone came in and bought the same number of VIX Dec 20 Calls and paid 2.10 for those options.  Both trades were 7500 lots and come darn close to a ‘call stupid’ which is a spread trade where two calls are purchased.  The origin of calling this stupid trade relates to no selling, just buying options which means paying double premiums.  However, if we experience a sell-off in the S&P 500 between now and mid-December we will not be allowed to make disparaging remarks about the traders behind these trades.

Volatility Indexes and ETPs Last Week – 11/15/2015

The S&P 500 took a dive last week in what turned out to be the second worst weekly performance of 2015.  As of Friday the S&P 500 is down 1.7% for the year which would be the first noticeable loss (2011 was down less than 0.01%) since 2008.  The four volatility indexes that use S&P 500 as the underlying all shot higher.  What stands out to me is the high levels for VXV (3-month) and VXMT (6-month) on the chart below.  We are in the midst of high SPX implied volatility and the market expects this to continue into 2016.


All things VIX and VIX related rose last week with a couple of exceptions.  Of course the short funds were lower and TYVIX also lost a little value last week.  UVXY put up an exceptional week, rising about 45%, which is expected in such situations.  Those long funds get all kinds of flak until we have a week like last week and then you have traders wishing they had owned the funds.

VXX Table

In the middle of the afternoon on Friday, as VIX was flirting with 20 and UVXY was just over 35 (35.02) a trade came to the UVXY option market that is look for UVXY to give up the tremendous gains (and then some) realized last week.  The time frame for this trade goes out to just before the official start of summer, or June 17, 2016.  The specific trade was a buyer of the UVXY Jun 2016 25 Puts for 9.67 who sold the UVXY Jun 2016 20 Puts for 6.34 and a net cost of 3.33.  A payoff diagram for this long term bearish UVXY trade shows up below.


The break-even level for this trade is 21.67 or 42% below Friday’s closing price of 37.41 (note UVXY rallied 2.39 after the trade was initiated).  A full profit will be realized if the trade is held to expiration and UVXY is under 20.00 at the close on June 17th of next year.  This involves a drop of about 47%, which is a distinct possibility in the world of leveraged volatility oriented exchange traded products.

Skew Charts to Prepare for CBOE Conference in Hong Kong – By Matt Moran

This month I am planning to travel to the First Annual CBOE Risk Management Conference (RMC) Asia, which will be held on November 30 – December 1 at the JW Marriott Hotel, Pacific Place, 88 Queensway, Hong Kong. In my preparations for the trip, I am analyzing the skew charts for a number of option classes, including options on the S&P 500®, the CBOE Volatility Index® (VIX®), and the FXI ETF.


As noted in the White Paper on the CBOE SKEW Index, after 1987 the SPX options smile “has lost its symmetry and it is biased toward the put side.” Out-of-the-money (OTM) SPX put options generally have higher implied volatilities than out-of-the-money SPX call options, because in the United States there is heavy demand for downside protection with stock index put options.

1 - SPX Skew on Nov 12

The three charts in this Blog are from Livevol Pro, which is structured around proven, real-world decision-making processes of traders and market makers with long-term, profitable trading careers. The full range of data, calculations, alerts, and visualizations needed to execute successful trades is woven seamlessly into a single web-based tool with no download or install needed. You can sign up for a free 15-day trial of Livevol Pro at



The VIX Index often moves in the opposite direction of the SPX Index, and some investors buy OTM VIX call options for some portfolio downside protection in times of market stress.

2 - VIX Skew for review


It is interesting to note that there is more symmetry in the skew chart below for the FXI options than there is in the two skew charts above. At RMC Asia I plan to learn more about differing slopes in the skew charts for worlwide options.

4- FXI Skew


Information on the CBOE SKEW Index is at www.cboe.com/SKEW.

On Twitter RMC updates are available at #CBOERMC.

Much more information on RMC Asia is available at http://www.cboermcasia.com/


VIX Last Week – 11/8/2015

VIX finished the week closer to 14 than 15 based on a muted response to the employment number and a lack of known potential volatility events on the horizon.  The fear index did manage to spend a little time on Monday and Tuesday under 14.00 which is a level that many consider the new ‘floor’ for VIX since we are about to enter a period of increasing interest rates.    The futures all followed the index lower which would be expected with smooth sailing for the stock markets to be the consensus near term expectation.

VIX Curve - Table

I continue to plot the front five week VIX futures expirations in a generic format as shown below.  My goal is to get a handle on what we should consider a ‘normal’ short term VIX curve.  Flat to slight contango is what pops up when VIX is low.  The bump between the Week 4 (December 1st) and Week 5 (December 9th) futures had me checking the economic calendar, but I couldn’t find a good reason for that slight drop off on the right side of the chart below.

VIX Weeky Curve - Table

I went poking around on Thursday evening looking for trades that were executed in VIX options, but appeared to be focused on the pending Non-Farm Payrolls Number that came out this past Friday.  The only thing that popped out at me was a pretty large buyer of VIX Nov 11th 25 Calls for 0.05.  Considering spot VIX was around 15.00 when this buyer was in the market, I think they either expected a truly horrendous employment report, at least with respect to the impact on the equity market or they believe a market calamity is pending this weekend or at least before next Wednesday’s settlement.

What did catch my eye on Thursday was a couple of bull call spreads focused on December.  It’s a bit early to see such trades, but a lightbulb sort of went off Friday morning when I heard the odds of a rate hike in December increased after the release of the employment number.  If this anticipation starts to hang over the equity market as December 16th (which is both standard December VIX settlement in the morning and the FOMC announcement in the afternoon) approaches a rise in VIX is very possible.  Two trades, that both look to the 20’s for VIX, went off late Thursday.  One trader went long the VIX Dec 16th 19 Calls at 1.36 and sold the VIX Dec 16th 29 Calls for 0.37 for a net cost of 0.99.  The payoff at December VIX settlement appears below.


The other trade that looked to a higher VIX in the middle of December purchased the VIX Dec 16th 20 Calls at 1.19 and sold VIX Dec 16th 25 Calls at 0.61 for a net cost of 0.58 and a December payoff settlement that looks like the diagram below.


Volatility Indexes and ETPs Last Week – 11/8/2015

The S&P 500 quietly rose just under 1% last week and VIX worked lower.  Across the board S&P 500 focused volatility indexes dropped with the possibility that any threat of increased volatility in the markets has been pushed out to 2016.  Of course back in August those same indexes dropped as the economic calendar was light and Labor Day was around the corner.  Note what happened on August 21st and August 24th when complacency started setting in.


On the table below note that SKEW remains high as does the VIX of VIX which can be taken as not everyone thinks the markets are done with volatility events in 2015.

VXX Table

In my search for a fun trade to discuss I decided to venture beyond VXX this week.  I scanned the trading activity on Friday for UVXY options.  The trade I came across looks to June of next year with a bearish outlook for UVXY.  Anyone that is familiar with VIX related funds knows the long ones tend to grind lower over time.  What I found was a buyer of the UVXY Jun 17th 20 Puts who then sold an equal number of the UVYX Jun 17th 15 Puts and UVYX Jun 17th 6 Puts.  This trade appears to be have been worked into over the course of the day Friday, but the biggest block involved buying the 20 Puts at 7.76, selling the 15 Puts for 4.42 and then selling the 6 Puts for 0.43 and a net cost of 2.91 per spread and a payoff in mid-June which shows up in the diagram below.


I’ll discuss the payoff at expiration and then my assumption behind how this trade may be handled.  First, this trade works if UVXY settles between down about 33% and 50% at June expiration.  That’s a wide berth, but not necessarily the plan.  I could see a trader taking profits on the short put positions in this spread the next time we have a volatility spike with the result being only the long put position remaining between now and June.

VIX Weeklys Options Average Daily Volume Tops 25,000 in First Month of Trading – By Matt Moran

Average daily volume for the new VIX® Weeklys options was a strong 25,042 contracts in October, the first month of trading for the products. Prior to last month, the VIX options had expirations only once a month, but now with VIX Weeklys options there usually are VIX options expirations in at least the first four weeks.

1 - VIX Weeklys options


A key feature of the new VIX Weeklys options is that they are in the same options chain as the standard-expiration VIX options. This screenshot below from Bloomberg (after the close on November 2) shows that there now are VIX options expirations on Nov. 4, Nov. 11, Nov. 18, and Nov. 24 (in addition, there are VIX options with longer-dated expirations).

2- ViX OMON on Nov 2


The addition of weekly expirations to standard monthly futures and options expirations offers volatility exposures that more precisely track the performance of the VIX Index. The closer VIX futures and options are to expiration, the more closely they generally track the VIX Index. By ‘filling the gaps’ between monthly expirations, investors may obtain new opportunities to establish short-term VIX positions, and fine-tune the timing of their hedging and trading activities.

The chart below shows select VIX futures in August. The week 34 VIX Weekly futures settled on the morning of Wednesday, August 26. As noted in the subheading, over a 3-day period the VIX Index rose 167% and the week 34 VIX Weekly futures rose 147% (while the standard-expiration VIX futures had smaller moves).

3 - VIX future in Aug


To learn more about VIX Weeklys futures and options, please visit www.cboe.com/VIXWeeklys.

First CBOE Risk Management Asia Agenda

Everyone at CBOE is looking forward to the first Asian version of the popular Risk Management Conference to be held November 30 to December 1 in Hong Kong.  Just today the preliminary schedule was just posted at www.cboermcasia.com which also works for registering to attend.

Topics to be covered at the conference include volatility oriented trading strategies, option based portfolio management approaches, how to handle risk management in different volatility environments, and volatility oriented strategies implemented by hedge funds.

Below is the current list of speakers scheduled to appear at the conference –

​El Mehdi Benhmade ​
Portfolio Manager, Capula Investment Management

Shane Carroll
Equity Derivatives Strategist, SG Securities, Ltd

William Chan
Equity Derivatives Strategist, Bank of America Merrill Lynch
Christopher Cole
Managing Partner, Artemis Capital Management

Gus Dhothar
Portfolio Manager, Goldman Sachs Investment Management

Tim Edwards
Ph. D., Senior Director of Index Investment Strategy,
S&P Dow Jones Indices

Michael Fagan
Chairman, Levitas Capital

Patrick Fay
Global Head of Derivatives, FTSE Russell

David Friedland
Managing Director, Interactive Brokers

Krag “Buzz” Gregory
Equity Derivatives Strategist, Goldman Sachs

Govert Heijboer
Co-CIO, True Partner Advisor Ltd

Timothy Hendricks
Founder, Managing Partner, X-Change Financial Access, LLC

Satoshi Iwanaga
CEO, Eurekahedge

Benoit Meulot
Portfolio Manager, BTG Pactual

Matthew Moran
Vice President, Institutional Business Development, CBOE

Russell Rhoads, CFA
Director, The Options Institute, CBOE

Steven M. Sears
Senior Editor and Columnist, Barron’s and Barrons.com

William Stephens
Strategist, Deutsche Bank

Edward T. Tilly
Chief Executive Officer, CBOE Holdings, Inc.


Volatility Indexes and ETPs Last Week – 11/1/2015

When I do these blogs I get the data, create the graphics and look at the markets.  I share these mundane facts about my ‘process’ to make a point about the diagram below.  Last week we got an FOMC meeting (although one without a press conference) and GDP number behind us without the stock market did not reacting negatively.  We are looking forward to the October employment report that comes out this Friday, but we did get two of the big three economic events behind us.  That combined with the S&P 500 rising on the week would make one think the volatility curve would have shifted lower, not higher.  However, numbers don’t line and the chart below shows some real concerns about the prospects for the stock market over the next few weeks.


Both SKEW and VVIX also remain elevated, although down on the week, which I take as a sign traders are not expecting to cruise through the end of 2015 without some detours or speed bumps along the way.

VXX Table

The biggest VXX option trade on Friday was also one of the last block trades of the day.  VXX was at 18.82 and a bear call spread was executed using the November 20th options.  The trader sold 6000 of the Nov 20th 17.50 Calls at 1.83 and purchased 6000 Nov 20th 18.50 Calls at 1.43 and a net credit of 0.45.  This trade is looking for three weeks of relative calm in the equity markets to persist and VXX to do as it does in this type of market, which is grind lower.   The payoff if held to November expiration appears below –



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