Weekend Review – VIX Options and Futures – 5/15/2016

After starting the week off on a bullish note, the S&P 500 finished out down just over a half a percent for the week. VIX was up just a bit more than 2%, most likely being held back by weakness that was associated with the S&P 500 moving higher on Monday and Tuesday last week.

The spread between the May VIX future and spot index is pretty narrow finishing Friday at less than a point. Not only did the spread between the May futures and spot VIX index narrow, but a portion of the curve actually dropped. June through October futures were lower despite the rise in VIX. The result is a slight flattening of what has been a pretty steep curve over the past few months.

VIX Curve Table

With May expiration rapidly approaching, most traders seem to be looking beyond May to June. I saw someone Friday morning who seems to be looking out to July for a volatility spike. With VIX at 14.23 and the July VIX futures at around 18.60 someone came in and purchased 6700 VIX Jul 20th 21 Calls for 1.92 and went several strikes higher and sold the VIX Jul 20th 35 Calls for 0.42 and a net cost of 1.50. The payoff diagram below highlights all the important price levels.


The maximum profit on this trade comes to 12.50 per contract with July VIX settlement at 35.00 or higher. The break-even price is 22.50 and finally anywhere from 21.00 or lower the cost of the spread, 1.50, is equal to the maximum loss.

Weekend Review – Volatility Indexes and ETPs – 5/15/2016

There was a slight twist in the VXST – VIX – VXV – VXMT curve last week as the shorter dated indexes rose and the two long dated indexes dropped slightly. Although unusual, I am not reading too much into this as the curve was already pretty steep and remains so after relatively small changes across the board last week.


While updating the numbers below the first thing that stood out to me was the continued elevated level of VVIX. With VIX up a bit, but still in the 15’s the demand for VIX options remains strong. This buying pressure is usually spurred on by purchasing of VIX calls which payoff in the event there is a selloff in the equity markets and a subsequent rally in VIX. TYVIX worked back up to relatively higher levels as concerns about the US economy caused a drop in interest rates.

VXX Table

SVXY rose slightly last week and VXX was down just under 2%. The whipsaw that was last week in the stock market did put more pressure on UVXY was down by over 4% while places the fund down over 48% for 2016. I continue to marvel at UVXY being off almost 75% from 2016 highs.


I’m always on the lookout for unusual trades in the VIX related ETN space. I know buying a call is not exactly the most unusual trade, but when the strike price of the call is 500% higher than the underlying market it catches my attention. Mid-day Friday over about a two-hour period, with UVXY trading between 13.12 and 13.46, someone appears to have loaded up on UVXY Jun 17th 100 Calls. Specifically, over 6,000 were purchased with the buyer paying between 0.05 and 0.07. UVXY is known for periodically experiencing tremendous upside moves, in fact the fund was up over 100% at one point in 2016. However, for UVXY to run to 100, we really would be looking at a market meltdown surpassing our experience in 2008. Also, note that these options only have five weeks until expiration, therefore the meltdown (and UVXY rally) needs to come quickly.

Weekend Review – Volatility Indexes and ETPs – 5/8/2016

The S&P 500 was down 0.44% last week which places the index up only 0.65% for the year. Three out of the four S&P 500 focused volatility indexes were also lower last week, despite the drop in the S&P 500. I find the longer end of the curve holding up like it has for most of 2016 interesting as well as worrisome, at least if you are bullish on stocks.


In the ETP space VXX was down by 5.11% and UVXY lost a little over twice as much at VXX. SVXY put up a decent week gaining 4.75%. Bond volatility in the form of TYVIX was down by about 5%. VVIX remains relatively high at 88.86 which shows that despite the drop in VIX, there is still demand for VIX calls.

VXX Table

The next chart is an apples to apples comparison of VXX, UVXY, and SVXY in 2016. After last week SVXY remains the only one of the three to remain in positive territory. UVXY was up as much as 100% this year before give it all back and then some.


UVXY closed at 15.27 on Friday, which for one trader, was an exceptional way to finish the week. About lunch time of Friday with UVXY at 16.43 a trader came in and sold 200 of the UVXY May 13th 16 Calls at 1.41 and then purchased 200 of the May 13th 19 Calls for 0.56 and a net credit of 0.85. The goal, is for UVXY to finish next week below 16, which is why I say they probably were pretty happy with what UVXY did between trade execution time and the close of business.


Weekend Review – VIX Options and Futures – 5/8/2016

VIX dropped last week, with a big part of the drop coming Friday afternoon. Note the futures followed suit, but specifically note that the front month May future gave up a little more ground than spot VIX. This is sort of common when we have an employment number. Also note how flat the curve is from July through November – the theory is that the Fed is out of play between the conventions and the election which may result in relative calm for the financial markets.

VIX Curve Table

Late Thursday a trade looking for some sort of move higher out of VIX and May VIX futures showed up at CBOE. There was a buyer of 500 of the VIX May 18th 23.00 Calls for 0.29 and sold 750 of the VIX May 18th 32.50 Calls for 0.07 each. Breaking this down to a smaller size they bought 2 of the 23.00 Calls for 0.29 and sold 3 32.50 Calls for 0.07 each – a net cost of 0.37 for each 2 by 3 spread.   As mentioned the trade occurred Thursday so the corresponding prices are Thursday’s as well. They didn’t get the volatility spike on Friday after payrolls, but they still have about a week and a half before time runs out on this trade.


Morningstar Is Adding New “Option Writing” Category on April 29 – By Matt Moran

In my opinion, the launch of a new Option Writing category by Morningstar this week has tremendous potential to boost long-term interest in and acceptance of options-based strategies by portfolio managers, financial advisers, and consultants.

On April 29, 2016, Morningstar is adding a new Option Writing category to its U.S Retail Category system, and the Category Index is the CBOE S&P 500 BuyWrite Index (BXM).


Over the past decade I have spoken to numerous representatives of different mutual funds that used options, and the top group of complaints I heard from these reps involved the Morningstar categories – these reps told me that the Morningstar categories were very important and influential, but the categories applied to their options-based fund (such as “Long-Short” or “Large Blend”) could be updated to be more accurately descriptive. Some of these representatives said that (1) they individually met with Morningstar to discuss the category applied to their fund, (2) they were interested in a the possibility of new Options category, and (3) they asked if CBOE could discuss the category topic with Morningstar. In 2014 I had a two-hour meeting with key Morningstar reps in which (1) I gave them an overview of performance of options-based benchmark indexes (such as the BXM Index) and some options-based mutual funds, (2) Morningstar reps told me that potential new Morningstar categories have several requirements, including the fact that there should be enough constituents to form the basis for reasonable peer group comparisons (e.g., a dozen funds generally would not be enough to generate a new category), and (3) I told Morningstar reps that in the future I would provide more information on many dozens of options-based funds. In early 2015 I was pleased to send to Morningstar a new study by Keith Black and Ed Szado that provided a list of 119 ’40 Act funds that used options (see more info on the study below).


Morningstar states that their categories “help investors identify the top-performing funds, assess potential risk, and build well-diversified portfolios.” In the U.S., Morningstar supports 122 categories, which map into nine category groups (U.S. equity, sector equity, allocation, international equity, alternative, commodities, taxable bond, municipal bond, and money market). The category group indexes and category indexes listed with each category are used in Morningstar’s tools and reports to show performance relative to a benchmark.

Two of the key Alternative categories that could be of interest to people who invest in options or volatility products are:

  Option Writing (introduced on April 29, 2016)

Option writing funds aim to generate a significant portion of their returns from the collection of premiums on options contracts sold. This category includes covered call strategies, put writing strategies, as well as options strategies that target returns primarily from contract premiums. In addition, option writing funds may seek to generate a portion of their returns, either indirectly or directly, from the volatility risk premium associated with options trading strategies.

  • Category Group Index: S&P 500 TR USD
  • Category Index: CBOE S&P 500 BuyWrite BXM
  • Morningstar Index: Morningstar US Market TR USD

  Volatility (introduced on April 30, 2011)     

Volatility strategies trade volatility as an asset class. Directional volatility strategies aim to profit from the trend in the implied volatility embedded in derivatives referencing other asset classes. Volatility arbitrage seeks to profit from the implied volatility discrepancies between related securities.

  • Category Group Index: S&P 500 VIX Short Term Futures TR USD
  • Category Index: S&P 500 VIX Short Term Futures TR USD
  • Morningstar Index: Morningstar Cash TR USD


Morningstar’s Category Index for the new Option Writing category is the CBOE S&P 500 BuyWrite Index (BXM). While there are some people who still wonder if use of options usually adds to volatility, see the chart below and note that since mid-1986 the BXM Index had less volatility than the Citigroup Treasury Bond, S&P 500, Russell 2000, MSCI EAFE, and S&P GSCI (commodity) indexes.

1 - BXM standard deviations


In 2015 Keith Black and Edward Szado published a paper “Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs.” You can visit www.cboe.com/funds to click on different versions of the paper — Slide Presentation (30-page PDF), Highlights (4-page PDF), and Paper (28-page PDF).

The 2015 paper found that the number of ’40 Act funds (including mutual funds, ETFs and closed-end funds (CEFs)) that used options grew from 10 in the year 2000 to 119 funds in 2014, and the paper provides a list of the names and ticker symbols for all 119 funds.

2- Number of funds

In the 15-year line chart graph in the 2015 Black/Szado study, the black line (representing the returns of the U.S.-equity-focused options-based funds as a group) and the green line (representing the CBOE BXM Index) both tracked each other pretty closely.  At the end of the end of the 15-year period, both the options-based funds and the S&P 500 rose 86%, the BXM Index was up 82%, and the MSCI EAFE Index (in US$) rose 46%. All these returns are pre-tax, and past performance is not predictive of future returns.

3 - Line chart growth

In the bar chart by Black & Szado showing annualized standard deviations, the Options-Based Funds (represented by the black bar) had lower volatility than the S&P GSCI, MSCI EAFE. S&P 500, BXM, and Citigroup 30-Year Treasury Bond indexes.

4 - Standard Devia Fds


I am looking forward to learning more about which funds will be included in the new Option Writing category, and I will be interested to see if the most funds in the new Option Writing category have less volatility than most funds in Morningstar’s domestic and global stock categories.

To learn more about options benchmarks. options white papers and options-based funds, please visit www.cboe.com/benchmarks and www.cboe.com/funds.

Weekend Review – VIX Futures and Options – 4/17/2016

VIX fell to 13.62 as the S&P 500 put up some gains last week. The curve shifted lower, but is steep, even the expiring April contract finished the week at about a 1.50 premium to spot VIX.



I noticed that the S&P 500 was higher than the close two weeks ago and VIX was higher as well. This is something many traders take a look at and may consider it a non-confirmation of the recent rally. Let’s see this coming week if the 13.00 low in VIX for 2016 holds on any equity market strength.

VIX SPX Corrected


On Monday an interesting trade came through the VIX pit and utilized some of the relatively new VIX Weeklys options. There was a seller of the VIX May 11th 16 Calls at 2.27 who purchased VIX May 11th 16 Puts for 1.00 and also spent 0.75 on the VIX May 11th 23 Calls. All this trading resulted in a credit of 0.52 and a payoff at expiration that looks like the diagram below.  The VIX and VIX futures pricing is from Monday as well.


So astute readers will note this is nothing more than a long put payoff. In fact, it is equivalent to buying the VIX May 11th 23 Put for 6.48. So why didn’t the trader just buy the 23 Put? Most likely the plan is to trade around these positions in the event of a move in the underlying market. If I pick up on what looks like someone trading around these positions I’ll be sure to report back in this space.

Weekend Review – Volatility Indexes and ETPs – 4/17/2016

The S&P 500 was up by 1.62% last week and the VXST – VIX – VXV – VXMT curve reacted accordingly shifting lower in a fairly parallel fashion. The steepness has me concerned about the second half of this year, but for now things look just peachy.


Note on the table below that despite (or maybe because of) the drop in VIX, VVIX rose a tad. It could be traders used to the weakness in VIX and related futures to get long volatility through VIX calls. It is a bit surprising to see VVIX over 90.00 while VIX is below 14.00. In the ETP space XIV and SVXY ruled the week both gaining over 8.5% and moving from down to up on the year.

VXX Table

I’ve added a new chart to this weekly review. Below is a depiction of how $100 investment in VXX, UVXY, and SVXY would have done year to date.   VXX is down about 15%, UVXY has lost 36% (after being up almost 100%) and SVXY is now up just under 2% for 2016.


Finally, a scary trade from last week. Each day last week there was a buyer of UVXY Weeklys that expire this coming Friday. The range for UVXY last week was a low of 17.41 to a high of 22.53. I note that because the trade I came across was a buyer of the UVXY Apr 22nd 60 Calls at prices from 0.03 to 0.05. For this trade to be profitable UVXY needs to rally roughly 250%, which means the stock market grabs headlines for a drop next week. I try to stay impartial, but in this case I’m going to root against our far out of the money UVXY call buyer.

VIX Network Session at FIA Boca

Yesterday afternoon at the 41st Annual International Futures Industry Conference in Boca Raton, CBOE and S&P Dow Jones Indices teamed up for a session highlighting the growing use of VIX around the world.

Reid Steadman from S&P Dow Jones Indices offered a brief welcome address where he noted the various markets where participants have access to a consistent measure of implied volatility.  He underscored that a wide variety of equity markets including India, Australia, and Hong Kong have access to a volatility index using the VIX methodology.  A full list of Global VIX Indices may be found here – www.spvixviews.com/indices/

Bill Speth, Vice President, Research & Product Development at CBOE and Dominic Salvino, VIX Options Specialist from Group One Trading followed Reid with an open discussion on the emergence of VIX as a tradable asset.  Both Speth and Salvino were involved in the development of VIX futures and options at CBOE through their work on the new product committee.  Dominic was the first and only designated primary market maker for VIX options as he applied his experience as a market maker in options on high volatility stocks to VIX.  Over the course of the presentation Dominic noted how VIX futures volume growth was boosted by the introduction of VIX options in 2006 and then again in 2009 when the development of the first VIX related ETP (VXX).  The chart below shows the average daily volume for VIX futures from 2004 through March 16, 2016 by year.

VIX Futures ADV


The presentation wrapped with thoughts about the future of volatility trading.  Looking to the future it was noted that VIX trading is mostly a US-centric phenomena, so there is considerable opportunity for listed volatility market growth around the world.

March 22 Panel at CBOE on Accessing the Volatility Risk Premium with Cash-Secured Put Writing – by Matt Moran

Presentations and a panel discussion on the topic of – Accessing the Volatility Risk Premium with Cash-Secured Put Writing – will occur on Tuesday March 22, 2016 from 5:00 PM to 6:45 PM at Chicago Board Options Exchange (CBOE), 400 So. La Salle St., (enter on Van Buren Street), Chicago, 60605



  • Oleg Bondarenko, Professor of Finance at the University of Illinois at Chicago
  • Tripp Zimmerman, CFA, Associate Director of Research at WisdomTree Asset Management
  • Mark Sebastian, COO & Director of Education at Option Pit


Matt Moran, VP of Business Development at CBOE


Issues to be discussed include –

  • Has there been a Volatility Risk Premium that can facilitate enhanced risk-adjusted returns for index options-selling strategies?
  • Do put-selling strategies have higher left tail risk?
  • How can investors access the cash-secured put-writing strategy?
  • What about topics such as transaction costs, transparency, liquidity, and capacity of the options markets?


The event will be hosted by CAIA Association, CBOE and PRMIA, and light refreshments will be served.

Fees are —
$10 in advance
$15 on the day of the event (if seating is available)

Space is limited so please see the link below and register by March 21.



The panel members will present numerous charts. Here is a chart by Professor Oleg Bondarenko on the topic of gross premiums generated by the CBOE S&P 500 PutWrite Index (PUT) (which sells SPX options once a week) and the CBOE S&P 500 One-Week PutWrite Index (WPUT) (which sells SPX options once a week).

Tw-07-Premiums by Oleg

Weekend Review – Volatility Indexes and ETPs – 3/13/2016

Three out of the four S&P 500 based volatility indexes dropped last week with the longer term focused VXMT rising slightly.  I went on a data fishing expedition with respect to weeks where VXMT and the S&P 500 rose, but couldn’t find a definitive patters.  I even looked at the predictive power going out as far as six months and got nada.  I did find out that both the S&P 500 and VXMT have risen in sync 52 times since 2008, which is interesting and a bit surprising, but doesn’t lead to anything else.



The S&P 500 up over 1% and VXMT, VVIX, and SKEW all rising last week doesn’t bode well for the market over the long term.  Near term, complacency is ruling the day, but long term concern still rules the day.  At this point, of the three VIX related ETPs I track closely (VXX, SVXY, and UVXY) only VXX is up on the year.  A repeat of last week and it’ll be in the red for 2016 as well.



Another week and another low risk short volatility trade to discuss in this space.  Last week I noted an out of the money call buyer who paid 0.05 for some SVXY Mar 18th 50 Calls.  SVXY has a ways to go for that trade to work.  I came across another long trade on Friday that works if SVXY is up by 0.15 or more from Friday’s close at the end of next week.  Part of this 0.15 before we get to break even is due to the trader executing early in the day when SVXY was at lower levels.


A couple of hours into the trading day, with SVXY at 42.76, a trader purchased 300 of the one week SVXY Mar 18th 40 Calls for 3.30.  SVXY finished the day at 43.15 so things look good so far for this trade.



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