Weekend Review – Volatility Indexes and ETPs – 4/2/2017

The shift lower in the VXST – VIX – VXV – VXMT curve was 75% parallel and 25% dramatic.  The dramatic move was at the shorter end of the curve where VXST dropped 28% moving from a premium to discount relative to VIX.


As noted volatility was lower across the board.  Of interest below, VVIX finished below 80 and TYVIX remained at very low levels. For the volatility bulls the only glimmer of hope is SKEW around 140, but it is pretty difficult to get excited about any level of SKEW when VIX is in the tweens.

VXX Table330

SVXY knocked the cover off the ball rising over 55% for the first quarter.  Not on the chart, but worth noting is the REX VolMAXX Short VIX Weekly Futures Strategy ETF (VMIN) which focuses on a shorter time frame than SVXY and XIV, was up 61.4% in the first quarter.


Since the quarter has come to an end the focus will soon turn to first quarter earnings.  Higher option implied volatility is often a bi-product of a pending earning release.  Although the announcements are a few weeks out, AMZN and AAPL option volatility rose last week.  The two Euro Currency related volatility indexes were among the gainers.  VXEFA which is an indication of risk associated with Euro Zone stability.  VXEFA is based on EFA ETF options which is a fund that gives investors exposure to developed markets excluding North America (US and Canada).  As a result, there is a heavy weighting toward European stocks in this index.

Vol Indexes 330

Finally, the first size VXX trade I’ve seen that appears to be focusing on the French election process which should come to an end on May 7th.  On Friday, with VXX at 15.53 a trader sold the VXX May 5th14.00 Puts at 0.33 and the purchased the VXX May 12th 13.50 Puts for 0.33.  Selling puts that expire before the final election and purchasing puts that expire just after just might be a bet on a post French election volatility crush.  The payoff below shows the outcome upon expiration of the May 5th position.


This trade is pretty interesting as it is offers short volatility exposure, but does not realize any losses if we get an unexpected upside volatility event between now and May 5th.  The worst-case scenario of a complete collapse in volatility which overshoots the put strikes and results in some sort of loss, which is capped at 0.50.  I always say traders will continue to find fascinating ways to utilize the different tools at their disposal and here is another example.

Weekend Review – Volatility Indexes and ETPs – 3/12/2017

The short end of the VXST – VIX – VXV – VXMT curve moved up while the longer end hardly budged.  TYVIX is at 2017 lows going into FOMC week, but it appears equity volatility may be pricing in some uncertainty in front of this week’s Fed decision.

Needless to say and already mentioned, VXST is the big attention getter on the table below with a 24% gain last week.  The Ten-Year futures dropped more in front of higher rates, but note that TYVIX, which closed at 2017 lows last Friday was unchanged on a week over week basis.

Short volatility was all the rage at RMC last week in California and the SVXY performance on the chart below explains why.  VXX and UVXY are just continuing to grind lower due to an absence of a volatility event in 2017.

On the table below I love comparing what was hot and what was not and this past week it was commodities at both ends.   Oil futures broke 50.00 which pushed OVX higher.  Gold didn’t do much and at the bottom of the table $GVZ and $VXGDX were the biggest volatility losers last week.

With Gold volatility so low I went looking for a trade that got long GLD volatility from last week.  I did not have to look very far as on the open Friday there was a buyer of a GLD Mar 17th 114.50 Straddle on the open Friday.  With GLD at 114.44 they paid 0.98 for the 114.50 Call and 0.95 for the 114.50 Put resulting in a net cost of 1.93 and a “V” looking payout demonstrated below.

If held to expiration this trade needs gold to move down about 1.6% or up 1.7% to break even.  I took a look at GLD weekly price action over the last 12 years and on average GLD moves up or down 2%.  This doesn’t take into account moves during the week which could be gamma scalped.  On a more recent time frame six of the ten most recent weeks have experienced a move of more than 1.7%.  I’m not a big advocate of buying straddles, but when volatility is cheap it can make sense.  It’s pretty hard to argue with the logic behind this trade.

Weekend Review – VIX Options and Futures – 3/12/2017

VIX was higher and all VIX futures were lower last week.  We have been in a pretty steep state of contango which flattened a bit.  However, there are expectations that April will remain elevated due to market conditions in Europe.  This will be explained a little more below.

The VSTOXX term structure appears below and note the elevated April futures contract price relative to the spot index (it’s impossible to miss).  This shape has been around for a while now and we’ll keep an eye on it as the French election approaches.

With a couple of hours remaining in the trading day this past Friday there was a risk reversal initiated in the VIX pit with a focus on April.  With the April futures contract at 14.40 and VIX at 12.00 someone sold 4050 VIX Apr 19th 13.50 Puts for 0.86 and bought 4050 VIX Apr 19th 20.00 Calls for 0.60 for a net credit of 0.26.  The payoff along with the futures and spot price highlighted appears below.

Weekend Review – VIX Options and Futures – 3/5/2017

The week over week change for VIX and the futures doesn’t tell the whole story last week. Despite falling on a week over week basis, VIX did show some life closing on Tuesday at 12.92 before retreating to close under 11.00 for the week.

VIX Term Structure Table

I’m going to add something to this space for the next few weeks as there is a divergence in the volatility world.  Specifically, VSTOXX futures pricing from April and beyond is at a significant premium to corresponding VIX pricing.  The chart / table below shows market concern for the Eurostoxx 50 going into April which coincides with the French election process.

VSTOXX Curve table

Also, for more on this divergence, Reid Steadman put up a nice blog late last week.


Since the volatility world is now fixated on April, I went searching for a trade that may be looking for higher volatility during that month.  On Friday, there was a diagonal spread that appears to be looking for a low VIX into March expiration and then higher volatility between then and April expiration.  With VIX just over 11.00 there was a seller of the VIX Mar 14.50 Calls for 0.49 who used those proceeds to cover some of the cost associated with buying VIX Apr 16.00 Calls for 1.36.  The spread came to a net cost of 0.87.

Weekend Review – Volatility Indexes and ETPs – 3/5/2017

Textbook and parallel are two terms that come to mind to described the shift in the VXST – VIX – VXV – VXMT curve below.  Also, steep comes to mind as the longer dated indexes are pretty elevated when compared to VIX and VXST.


The long funds below benefited from volatility increasing a bit on Tuesday last week, with VIX even putting in a 2017 high, before resuming their downward trajectory.  Note TYVIX giving up 10% which puts the volatility of 10-Year Treasury Note options at the lowest levels since October 2016.

VXX Table

Short volatility has ruled 2017 and SVXY is now up well over 40% while VXX has given up over 30% and UVXY is down exactly 54%.


Leaders to the upside, or where the volatility was at last week, were the EuroCurrency (EUVIX), Brazil (VXEWZ), and Gold Minders (VXGDX).

Vol Indexes

Tuesday VXX closed at 18.42 which was 0.13 off the high for VXX last week.  One nimble trader came into the market with a bearish spread executed at the closing bell.  The specific trade was a buyer of 3000 VXX Mar 10th 18.50 Puts for 0.85 who then sold 4500 VXX Mar 10th 17.50 Puts for 0.30.  The net for each 2 x 3 spread comes to a cost of 0.80.  The payoff for this trade on the close this coming Friday appears below.


I placed where VXX finished the week on this diagram to show the market is right where the trader behind this spread wants, just a week early.  17.50 is the very best outcome for this trade, with upside break-even at 18.20 and room on the downside to 16.30.

Weekend Review – VIX Futures and Options – 2/26/2017

To say that volatility was flat last week is misstating the facts.  Sure, VIX was lower, but wow, look at the rest of the curve.   All contracts were higher with April and May futures leading the way at up over 6%.  For this we will blame France, which I will explain after the VIX Table / Term Structure below.

VIX Table Curve

VSTOXX is basically VIX for the European markets.  Specifically, it is an index that calculates a consistent measure of implied volatility as indicated by options on the EuroStoxx 50 Index.  The diagram below is a term structure using VSTOXX and futures from Friday.  Note the big spread between March and April.  It appears the pending election in France is hanging over the markets it that part of the world.  VIX traders probably want to keep an eye on VXSTOXX pricing as there are lots volatility traders that will trade the VIX – VSTOXX spread and as long as there’s risk hanging over Europe it will probably influence VIX activity as well.


This week’s trade is a common one used with VIX options, a bull call spread.  However, what is unusual about this trade is when it was executed.  Between about 5:00 am and 8:30 am Chicago times there was a buyer of over 20,000 VIX Mar 15 Calls at prices between 0.90 and 1.10 who then sold the same number of VIX Mar 22 Calls at around 0.20 in each lot.  The result was a bull call spread using VIX Mar 15 Calls and Mar 22 Calls at an average net cost of 0.89.  The payoffs on the diagram below show this trade at expiration along with the payoff half way to expiration.


Note above that the break even for this trade at expiration is 15.89 while it appears a move to 15.00 for the March futures (half way to expiration) would result in the position moving from being a loser to being a winner.  Also, for those who can’t wait until the standard market opening time of 8:30 am this is a good demonstration that there’s liquidity to get things done during extended trading hours.

Weekend Review – Volatility Indexes and ETPs – 2/26/2017

VIX was the only S&P 500 related volatility index that lost value last week.  VXST rose, probably getting a boost from coming off a long weekend.  The longer dated volatility indexes mirrored the action in longer dated VIX futures by moving to the upside.  April seems to be the next month of concern among volatility players with the pending election in France.


Other pockets of volatility are showing up in the table below.  SKEW finished the week near recent highs and VVIX rose a bit.  The longer dated ETPs also were where some of the action was at with VXZ up almost 4% and ZIV giving up about 3%.  It really does feel like a storm is rolling in and everyone is starting to prepare for a long overdue drop in the equity markets.

VXX Table

I didn’t run the numbers, but it sure seems like this is the first week where SVXY was lower and the long funds gained ground.  For the year SVXY still has a very comfortable lead.

VXX SVXY UVXY Performance

The three biggest volatility index gainers on the list below have a common theme, non-US markets.  The top of the list if VXEFA which is based on EFA ETF option pricing.  This ETF is best described as developed markets outside North America (ex-US and Canada).  Just behind VXEFA are volatility indexes based on a handful of emerging markets and Brazil.

Vol Indexes

Finally, the markets are starting to look to April with the pending resolution of the electoral process in France.  Of course, the outcome may create more issues with respect to the future of the Eurozone.  On Friday, there was a bullish VXX trade that is looking out to standard April expiration.  With VXX at 18.49 there as seller of 2000 VXX Apr 19 Puts at 2.32 who purchased 2000 VXX 16 puts for 0.67 and a net credit of 1.65.  VXX over 19.00 results in a profit equal to the credit of 1.65.  The worst-case scenario has VXX bellow 16.00 on the third Friday in April which would results in a loss of 1.35.


Weekend Review – VIX Options and Futures – 2/19/2017

We’ve experienced several twists in the volatility markets this year where the futures don’t move in sync or in line with spot VIX.  This occurred again last week as VIX rose almost 6% while the futures markets moved lower.  Part of this may be attributed to February going off the board, at least with respect to March, but the farther date futures had been a bit elevated this year, but with the lack of any sort of volatility event appear to have started to weigh on the farther dated part of the curve.

VIX Table TS

VIX Weeklys options continue to garner more interest.  Over the past week, I came across a trade that is pinpointing higher volatility sometime before the end of February.  In a handful of lots someone sold 10,000 VIX Mar 1st 12 Puts for 0.50 and then purchased the same number of VIX Mar 1st 13 Calls for 0.75 and a net cost of 0.25.  It was nice to see a sizable trade executed in that market as a confirmation of there being enough liquidity in the non-standard expirations to facilitate a large trade like this.  The payout at March 1st settlement appears below, but as always, I’m going to assume a volatility spike between now and then would result in the call side of this trade being exited.

VIX Weekend PO

Weekend Review Volatility Indexes and ETPs 2/19/2017

VXST and VIX managed gains last week while the longer dated volatility indexes (VXV and VXMT) both lost value.  The curve created by charting out VXST, VIX, VXV, and VXMT has been steep for most of 2017 as the shorter dated indexes have been at very low levels.  The price action last week narrowed the angle to more normal levels.


Last week the S&P 500 was up just over 1.5% and VIX rose over 5%.  More on that after the table below.

VXX Table

I ran some numbers and this is on the 14th time since 1990 we have had both rise by this amount.  The previous 13 had mixed results the following week.  Honestly, I was hoping for something more significant.  I guess for now it’s back to crunching numbers for me.

SPX VIX After Both Rise

SVXY is now up over 40% for 2017, VXX has dropped over 30% and the leveraged UVXY has given up over 50% this year.


In addition to VXST and VIX there were a handful of other volatility indexes that rose last week.  However, it was a mix of indexes that rose, EuroCurrency, AAPL, AMZN, and Brazil for example with no real pattern among the leaders.

Vol Indexes

The low for VXX this past week came around the open Wednesday as the long VIX focused ETN was trading around 16.80 to start the day.  One astute and large trader came into the market buying a few thousand VXX Feb 17th 17.00 Calls for 0.20 and selling an equal number of the VXX Feb 17th 17.50 Calls for 0.09 and a net cost of 0.11.  I liked this trade for two reasons, first we can see how the trade worked out since those options expired on Friday.  Second, because we get to see an example where getting long exposure to VXX works.


I highlight where VXX was when the trade was executed and Friday’s close.  This trade is a perfect example of a strategic option trade that worked out as well as it was drawn up.

Block Trade – 1 x 4 VIX Call Spread

I’m on the road today playing an academic, but regardless of how far I am from CBOE I still am fortunate that I’m constantly keep in the loop about big trades.  I got a heads up this morning that a VIX Mar 15 – 22 1 x 4 Call spread traded in the VIX pit a few minutes after the open.  My assumption was the trader bought the 15’s and sold the 22’s (I was wrong) mainly because all the big trades seem to be based on a low volatility outlook.  Also, my incorrect assumption was based on the March VIX call option skew which appears below.  Note I highlighted the two options involved in this trade with the implied volatility of the 15 calls at around 90 and the 22 call IV at 125.

VIX Skew

As I mentioned my assumption was wrong and the specific trade involved selling 15,000 VIX Mar 15 Call at 0.74 and buying 60,000 VIX Mar 22 Calls at 0.24 each for a net cost of 0.22 per 1 x 4  spread.  This trade was executed when VIX was at 12.10 and the March contract was at 13.00.

At expiration, this trade would not make money unless VIX settlement comes in around 24.40, but these types of trades are usually implemented with the intent of trading out of them on any sort of volatility spike.  I usually state that without including an example of what I’m talking about.  Today that comes to an end with the payoff diagram below.


Note I highlight the price of the March contract when the trade was executed, but neglect to include VIX.  That’s because the best pricing vehicle for the March options is the corresponding future and the curved line on the payoff diagram is priced off a futures price assumption.  The specific assumptions behind the half way to expiration line is 10 trading days to expiration and no change in each VIX option IV (unrealistic, but probably understanding the real profit).  Note on a volatility spike the break-even for this trade is closer to 20.00 and when the at expiration trade breaks even, this trade would have an unrealized profit of 5.50.


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