Last Week in VIX – 7/19/2015

VIX closed at 11.95 which is the low for 2015 on Friday and below 12.00 for the first time this year. The week over week drop for VIX was 29% which is the third biggest one week drop in the history of VIX. The curve shifted accordingly, but do note with only two trading days to go the July futures finished the week just about a point higher than spot VIX.

VIX Curves

I’m away from CBOE this week, but never away from the markets. I did note via my twitter feed the history of the market the day after VIX moved under 12.00 intraday in 2015. It is not much of a history as Thursday was the third time this happened which was of course followed by Friday’s action. Here’s a brief review of what I tweeted out with an update for the Thursday and Friday price action.

  • May 22nd – VIX low was under 12 for the first time in 2015 – next trading day SPX was down 21.88
  • June 23rd – VIX low was under 12 for the second time in 2015 – next trading day SPX was down 15.61
  • July 16th – VIX low was under 12 for the third time in 2015 – next trading day SPX was up 2.35

So Friday broke the mini-streak of the S&P 500 dropping the day after the handle for VIX hit 11 on the day.

Next week the CBOE Futures Exchange will introduce futures contracts expiring every week. Options will follow in the next few weeks pending regulatory approval. I have been paying particular attention to trades executed in VIX options when expiration is just a few days off ever since the announcement that VIX Weeklys were on the way. On Friday, VIX was hovering around 12 (12.04) to be specific, and a pretty unique trade came into the VIX pit. There was a buyer of the 863 VIX Jul 12.50 puts at 0.25 who also sold 863 VIX Jul 12.50 Calls for 0.75. In addition they sold 3750 VIX Jul 13.00 Calls at 0.54 and purchased 3750 VIX Jul 14.00 Calls at 0.30. The net result of these trades was a credit (before commissions) of $133,150. I divided up the trades in the table below.

VIX Trades

The payoff diagram below is a slight deviation from the norm. Since the size for the 12.50 strike options is different than the 13.00 and 14.00 call positions I decided to display the payout in terms of dollars. The ultimate goal for this trade, if held to expiration, is that July VIX settlement comes in a low as possible. Anywhere below 13.20 results in a profit which, if the stock market holds up next week, looks likely with VIX closing Friday at 11.95.


Last Week in Volatility Indexes and ETPs – 7/19/2015

Last week VIX did what I guess it is supposed to do and moved to very low levels to reflect that we are in the summer doldrums.   VIX dropped in a way it usually rallies and was down 29% last week for the third biggest one week drop since 1990. VXST was down over 43% as the curve went quickly from slight backwardation to contango.


The long ETP’s got slapped around a bit with VXX losing 17% and the leveraged funds giving up about 33%. The inverse funds moved higher, but only by about 20% as that nasty daily performance resulted in a smaller gain than loss for the long funds.

VXX Table

On Thursday, VIX dropped below 12 for the third time this year. The last two times this happened the S&P 500 was down tremendously the next day. Now that Friday is behind us we know that the streak of big drops after VIX has an 11 handle on the day ended at 2 (is 2 actually a streak?). I did go searching for a trade using VIX ETPs that was hoping for a rally, which would be expected if the S&P 500 dropped quickly. Instead I came across a trade using UVXY options that had only one day remaining to expiration and worked if the fund dropped a little or gained a lot. With UVXY at 28.37 there was a buyer of the UVXY Jul 17th 29.50 Puts at 1.61 who also purchased the UVXY Jul 17th 34.50 Calls at 0.06 for a net cost of 1.67.


This trader needed UVXY to drop 1.7% from where the fund was when they put on the trade or rally 29.6% just to break even. They also only had one day for this price action to occur in UVXY.   We know the S&P 500 was relatively quiet on Friday and the result was UVXY finishing the day at 27.52 which placed the 29.50 Puts solidly 1.98 in the money.

Last Week in TYVIX by Catherine Shalen

Every day Brings a New Twist to TYVIX, Benchmark for Treasury Volatility

The referendum in Greece on Sunday was a non-event for Treasury volatility. TYVIX opened at 6.70 on Monday, 1.82% above its closing value on July 2nd, but by 10:30, TYVIX was back to 6.58. Equity and FX volatilities were more reactive. VIX opened 11.08% higher, EUVIX 6.71% higher, JYVIX 5.74% higher and BPVIX 3.32% higher.

After this open, Treasury prices began a rally which lasted until Thursday, as investors responded to mixed employment signals and the cautious tone of the FOMC’s minutes. On Thursday, Fed fund futures implied a higher probability that the Fed Fund target rate would only be uncorked in January 2016. The pressure to sell Treasuries seemed off. In addition, uncertainty about the European Union was driving investors to safe Treasuries. The demand from buy and hold investors at Wednesday’s auction for 10 year Treasury notes was strong, and Lipper reported a net inflow of $3.130 into taxable bond funds for the week ending on July 8th.

Then on Friday morning, Greece’s new budget plan was out and Janet Yellen stated that the economy was ready for a rate increase this year. This broke the rally with the 10 year Treasury yields popping back to 2.39, about even with last Thursday. After the speech, TYVIX was down to 6.61 even with Monday’s close.


Figure 2 shows that the frequent twists and turns of Treasury futures since April 2015 have pushed TYVIX to a new higher level.

   Figure 2: Ten-Year Treasury Futures


VXTY futures that expire from July 2015 to October 2015 are still in a tight contango pattern. With so much uncertainty, the futures have been meandering gently upward over the last two months, much as TYVIX has.

   Figure 3: TYVIX Futures


Last Week in VIX – July 6 – July 10

Nothing on the week over week curve chart shows what really happened last week in the markets. VIX finished the week in line with the previous week’s closing price as did the S&P 500.   However, at one point during the week VIX was just over the psychologically significant 20 level or up 19.4% and the S&P 500 was down about 1.5% from the close on July 2nd. It is worth noting that the shape of the curve below remains pretty steep as we look to the always interesting fourth quarter.

VIX Curve

One trader stepped up and faded the VIX move from Wednesday using a bear call spread. With VIX at 19.30 and the July futures in the 18’s there was a seller of the VIX Jul 19 / 25 Call spread for 1.04. Specifically they sold the VIX Jul 19 Call at 1.73 and purchased the VIX Jul 25 Calls for 0.69. As always a payoff at expiration is displayed below.

VIX 19 - 25 CS Payout

The expectation would be that July VIX settlement will come in somewhere under 19.00 and both legs of this trade will expire with no value. More bad news from around the world could result in a lower stock prices and a spike in volatility. This is a worst case scenario for this trade and the result could be as bad as a loss of 4.96 per spread. Finally, I took a quick look at this spread and where it was priced on the close Friday. So far things look good as the VIX Jul 19 Call was offered at 1.00 and the VIX Jul 25 Call was bid at 0.35 which means if the trade were exited on the close Friday the realized profit would stand at 0.39 a spread.

Last Week in Volatility Indexes and ETPs – July 6 – July 10

From the pre-Independence day July 2nd close to this past Friday VXST was down 0.73, VIX was up by 0.04, VXV was 0.05 higher and VXMT finished 0.28 higher. VXST is sort of an anomaly as there is a 3-day weekend impact that pushes the index lower. As the week over week change does no justice in showing the actual price action from last week I included the Thursday closing curve to show that last week was anything but boring.


Note on the table below both VXX (and the similar funds) and SVXY (plus XIV) were lower last week. The long funds will follow the performance of their respective strategy indexes while the short funds track a daily performance. The result can be that both long and short funds drop when we have a very volatile week in the equity markets like last week. As soon as my intern returns from her vacation she’s going to get to work on how often both the long and short funds lose value in the same week and what happens afterward.

VXX Table Part 3

On Monday VXX was gravitating around 21.00 when I came across a trade that had a bearish outlook. A relatively small trader sold the VXX Jul 10th 21 Calls at 0.60 and purchased the VXX Jul 10th 22 Calls for 0.24 for a net credit of 0.36.   As long as VXX finished the week below 21.00 this trade pays off 0.36 or the credit received for putting it on. In lieu of a payoff diagram I have included a price chart for VXX with the 21.00 price level highlighted.

VXX Price Chart

Every day last week VXX managed to trade above 21.00 at some point during the day, including Friday for a brief moment. However, as the stock market rallied on Friday VXX faltered finishing the week well below the critical 21.00 level at 19.85.

OTM Bear Call Spread from Monday’s VIX Rally

Fear was heightened on Monday and Greece and then China was making news.  VIX was high there and there was a trade that came into the VIX pit taking advantage of the move.  As the day came to a close, VIX was at 19.66 and the July Futures were more than a point lower. Someone saw that they could sell VIX Jul 32.50 Calls for 0.25 and purchase VIX Jul 35.00 Calls for 0.15 taking in a credit of 0.10.


July VIX expiration is the 22nd so as long as VIX does not go up about 65% and the July futures follow the index to the upside this trade will be OK. If we do get a volatility spike to 35 or higher this trade ends up with a loss 2.40 a spread.

Reviewing a VIX Option Trade into Expiration

CBOE and the CBOE Futures exchange plan on launching VIX Weeklys options and futures respectively over the next couple of months. Usually when new markets start trading we have to do a little wait and see with respect to strategies that large traders are implementing. However, with VIX Weeklys we have over 100 expirations since VIX options were launched and we can look to trading in VIX options and futures that have occurred near expiration.

With this in mind I did some digging around on the Monday June 15th to find an interesting trade to write about. I chose that day because VIX was up 11.6% on the day closing at 15.39 and the June VIX Futures contract was up 9.5% to finish the day at 15.50. I also picked this day because the June VIX futures and options settled on the open on Wednesday June 17th.  That means any trade initiated on this Monday only had one trading day and overnight remaining until settlement.

What I came across was a bit of a head scratcher. Peter Lusk and I spent a little time debating what was going on here and we reached a consensus which I will now share. First, with seconds left in the trading day, VIX at 15.39 and the June VIX Futures at 15.50 there was a 2 x 2 x 3 spread that was executed in a handful of block trades. The trader sold 2 VIX Jun 15 Puts for 0.30 each and also sold 2 VIX Jun 16 Calls at 0.50 each. The trade was then completed as the trader purchased 3 of the VIX Jun 18 Call at 0.20 each. The net result for a 2 x 2 x 3 spread was a credit of 1.00 and a payoff at expiration that is highlighted.

VIX Short Term Chart

The two most important levels for this trade seem to be 14.50 on the downside and 16.50 on the upside. As long as June VIX settlement falls between these two levels the trade would result in some sort of profit. The best case results would be if June VIX settlement came in between 15.00 and 16.00 (spoiler alert – it didn’t). Another potential positive would involve a big one day rally in VIX which would most likely have been in response to a dramatic sell off in the equity markets (spoiler two – that didn’t happen either). The price action for the day leading up to the trade and the last trading day for June VIX options is below.

VIX Chart Fixed

This is a two day chart showing the price action on Monday the 15th and Tuesday the 16th. The price levels for VIX and June VIX at the time of the trade is highlighted. Note that this trade was not without some stress as VIX and the June VIX Future spent most of the following day grinding lower.  Tuesday VIX finished the day at 14.81 and the last trade for the June VIX future was 14.90, both prices were above the downside break-even point, but below the put strike of 15.00. However, if held to settlement, this trade still was not completed.

VIX options and futures are AM settled so any open positions do have some overnight risk. In the case of June settlement, final settlement was a tad lower at 14.67, once again above the break-even level, but not high enough for all options in the spread ending up out of the money.

New VIX Weeklys Futures and Options – Enhanced Responsiveness with More Wednesday Expirations – By Matt Moran

CBOE Futures Exchange (CFE®) plans to list futures with weekly expirations on the CBOE Volatility Index® (VIX®) beginning Thursday, July 23, 2015, subject to regulatory review. VIX Weeklys options at CBOE are expected to follow on a later date, also subject to regulatory approval. The new VIX Weeklys futures and options will offer more expirations that have the potential to provide more precision and responsiveness for investors.


In the Striking Price column in Barron’s, Steve Sears noted that with the new VIX Weeklys futures and options –

“ … traders will be able to calibrate VIX contracts with market-moving events, ranging from economic data releases to Federal Reserve rate-setting decisions. This should prove attractive because the capital at risk is relatively small, and payouts can be huge. Since CBOE introduced weekly expirations in 2005, short-dated expirations have proven wildly popular. Overall, about 35% of CBOE total volume is attributed to weekly expirations, up from 26% in 2013. …”


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. 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 closer VIX futures and options are to expiration, the more closely they generally track the VIX Index. For example, compare the daily % moves in the column charts below of the VIX Index (in orange) and the VIX nearby futures (in green). Note that on the three charts below on the left (within 7 trading days of the standard VIX expiration), the VIX nearby futures rose more than 25% on all three dates. However, for the three column charts below on the right (dates more than 16 trading days prior to the standard VIX expiration), the VIX nearby futures rose less than 14.5%. With the addition of the new VIX Weeklys futures, investors should always have access to VIX futures with five or fewer days to the VIX futures expiration, and thus have access to VIX futures that potentially are more responsive than VIX futures with 20 or 30 days to expiration. See the next section for more analysis on this point.

1- Daily change - Six select dates4. MORE RESPONSIVENESS – COMPARING MORE THAN 2,700 DATES
While in the previous section I presented six select dates to compare responsiveness, the chart below presents the beta of the daily change of VIX futures to the VIX Index as a function of time to expiration. Note that the VIX futures had a beta of 0.79 with one day to the VIX standard expiration, while the VIX futures had a beta of 0.39 with 33 days to expiration.

2-Beta VIXWith the addition of the new VIX Weeklys futures, investors should always have access to VIX futures with five or fewer days to the VIX futures expiration, and thus have access to VIX futures that potentially have a higher beta to the VIX Index than VIX futures with 20 or 30 days to expiration.


CBOE expects that quotes on VIX Weeklys will be listed within the VIX futures and options chains.

VX Weeklys Futures symbols will be VX01 through VX53. Embedded numbers denote the specific week of a calendar year during which a contract is settled. A VX ticker symbol followed by a number will not be used for any week that has the standard expiration for VIX futures (e.g., on August 19, 2015). In the table below, note that for this month and previous months, there was only one expiration date for VIX futures, but in the future most months should have 4 or 5 expirations for VIX futures.

3 - Expiratn dates Tickers VIX Weeklys


More information and updates regarding VIX Weeklys futures and options is at

VIX Last Week – June 29 – July 2

VIX rallied over 34% on Monday as the Greece situation worsened and global equity markets sold off. The front month July VIX contract gained just under 20%. As the week progressed we gained insight into June economic activity with an unusual Thursday release of the non-farm payroll report. The stock market moved on quickly and VIX and the July future both finished the week with a 16 handle.  The curve, which moved to backwardation on Monday finished the week in contango, but a much flatter version of contango than we have witnessed as of late.

VIX Curve

On Thursday last week I came across a trade I do not normally see executed in the VIX pit. There was a broken wing butterfly that involved selling the VIX Jul 20 Call at 1.22 and VIX Jul 20 Put at 4.24.   For downside protection the VIX Jul 14 Put was purchased for 0.33 and to the upside the VIX Jul 25 Call was bought at 0.63. All this activity resulted in a credit of 4.50. Those that are quick with numbers will notice that the long put is six points lower than the short option strike while the call is five points higher.


Note the July VIX futures and spot VIX closed with a 16 handle on Thursday. That means the trader behind this particular position is hoping for higher VIX with a specific target of 20.00 at July expiration. Normally we think of any time of butterfly having a neutral price outlook, that’s not the case in this instance.

Volatility Indexes and ETPs Last Week – June 29 – July 2

We had the most exciting market action during the holiday shortened week. As everyone knows we can thanks the cradle of civilization Greece for all the hub bub. On Monday the S&P 500 was down over 2% for the first time since October of last year. VIX reacted accordingly by rising over 34% on the day for the biggest one day move in over two years.

Despite the S&P 500 rebounding a bit, the VXST – VIX – VXV – VXMT curve continues to signal some concern. The VXST to VIX premium is pretty interesting considering that on Thursday we got the June employment number behind us and we are in the middle of a long weekend. Typically VXST experiences a big of a head wind going into a long weekend due to the calculation being based on calendar days. I was honestly a bit surprised at the shape of the curve when I started putting this blog together Thursday night.


I often respond to criticism of VXX by stating that, “it does what it is supposed to do when it is supposed to do it.” This past week the long ETPs did what they were designed to do and rallied on Monday in response to a dramatic increase in market volatility.

VIX Index Table

Late Thursday a ratio spread was executed in the UVYX space that will result in a profit as long as UVYX does not rally over 43% between now and July 10th. With UVYX at 42.32 there was a buyer of 300 UVXY Jul 10th 55 Calls at 1.90 who also sold 600 UVYX Jul 10th 60 Calls at 1.39 each for a net credit of 0.88 per spread. The payout diagram below shows how things will turn out base on this spread being held through the close this coming Friday.


UVXY finished the day at 42.59 and the break-even price for this trade is up at 65.88. That’s a 43.6% move to break-even. As long as UVXY finishes the week at 55 or lower the result will be the 0.88 per spread credit taken in when the spread was established turning into a profit.


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