Record Highs for Nine CBOE Indexes – By Matt Moran

TUESDAY, MAY 27, 2014 — Here are the all-time record high daily closing values that were reached by nine CBOE benchmark indexes today –

The above benchmark indexes use instruments such as the S&P 500® (SPX) options, or options or futures on the CBOE Volatility Index® (VIX®), with investment goals such as enhancing yield with options premiums, or managing risk with SPX puts or VIX calls. The buywrite indexes and the PUT index have benefited from the fact that they have sold one-month index options that usually have been richly priced, i.e., the implied volatility usually has been higher than subsequent realized volatility. The CBOE VIX Premium Strategy Index (VPD) tracks the value of a portfolio that overlays a sequence of short one-month VIX futures on a money market account.

A 2013 BlackRock paper -  VIX Your Portfolio – Selling Volatility to Improve Performance noted that – “A strategy that systematically sells volatility on a diversified equity index should capture a positive risk premium over long horizons because it is similar to selling insurance,” and the paper highlighted these volatility-selling strategies –

  1. Selling SPX index options per the CBOE S&P 500 PutWrite Index (PUT),
  2. Selling one-month O-T-C variance swaps, collateralized with Treasury bills,
  3. Selling futures on the CBOE Volatility Index® (VIX®), collateralized with Treasury bills.


Here are price charts for three of the indexes that reached record daily closing values on May 27 –

PUT May 27

BXY May 27

LOVOL May 27

A prudent, inquisitive investor might acknowledge that it is nice for an index to reach an all-time record, but the investor also could inquire about a long-term comparison of the performance of many indexes. The chart below shows that since the inception date for BXY price history (June 1, 1988), the options-based BXY and PUT indexes have had higher returns than the S&P 500, S&P GSCI, and MSCI EAFE indexes. Furthermore, over that time period, all three options-based indexes (BXY, PUT and BXM) have had lower volatility than the S&P 500, S&P GSCI, and MSCI EAFE indexes. To read more studies and charts related to the benchmark indexes, please visit

Six indexes thru May 27

Last Week in VIX – 5/26/2014

VIX ended up the week pretty low, but not at the post 2008 lows we all like to focus on. Since the end of the great financial crisis VIX has closed at 11.30 twice – last year on both March 14 and 15. From March 15, 2013 to this past Friday (May 23, 2014) the S&P 500 has climbed from 1560.70 to 1900.53 – a rise of 21.77% and VIX has not made a new low.


There was an interesting VIX option trade earlier this past week that is looking for VIX to remain at low levels over the summer time. On Wednesday there was a seller of 151,000 VIX Sep 19 Calls at 1.29 who also purchased 151,000 VIX Sep 28 Calls for 0.44 and a net credit of 0.85. The payoff diagram below shows that the risk is definitely to the upside.   As long as VIX is below 19.00 at September expiration the trade results in a profit per contract of 0.85.

VIX PO Corrected


As far as the VIX term structure curve goes, it appears the volatility market is expecting more of the same or low volatility as we now enter (unofficially) the summer season.


Last Week in VXST – 5/26/2014

VXST closed Friday at an all-time low. I know VXST has only been quoted since late 2013, but CBOE does have historical data on the CBOE Short-Term Volatility Index going back to the first day of 2011. Only twice has VXST finished the day below 10.00 and Friday’s closing price of 9.49 was well below the previous record low of 9.97 back on January 10th. The S&P 500 rising 1.21% last week along with a close over 1900 both contribute to the low level of VXST. Also, the three day weekend is a contributor to a depressed VXST. Instead of rehashing that whole story I’ll guide readers to the VXST blog from our last three day weekend in April –


The curve is steep and this is also a function of the long weekend as the VXST futures contracts anticipate a rebound in the underlying index which follows a three day weekend. Do keep in mind the May 28th VXST futures and options trade Tuesday and then settle on the open Wednesday morning. Despite VXST (or due to?) trading below 10.00 there was trading activity in several of the VXST May 28th Calls including the 13, 15, 16, 17, 18, 19, and 20 strikes.


Last Week in Gold and Oil Volatility – 5/26/2014

The SPDR Gold Shares ETF (GLD – 124.51) rose 0.01 last week and traded in a very narrow range for the second consecutive week. Despite the lack of price action in GLD the CBOE Gold ETF Volatility Index (GVZ – 14.52) rose about 3.4% last week. I would be a little more alarmed by this dichotomy if GVZ were not being quoted at such low levels. Although theoretically volatility indexes can go to zero there is usually a level where “it can’t go much lower”. Like a few volatility indexes, GVZ is around those price levels these days.



The price of oil continues to rise as summer driving season is upon us and Putin blames the west for the problems in Ukraine. Oil futures trading in the 104’s this week pushed OVX up 3% as well.


Both GVZ and OVX were higher, but the respective futures all traded lower. The term structure curves flattened a bit, but still remain in contango for the moment.


Last Week in Russell 2000 and NASDAQ-100 Volatility – 5/26/2014

The NASDAQ-100 (NDX) has been underperforming the S&P 500 (SPX) for most of 2014, but did play some catch up last week. The SPX rose 1.21% while NDX was 2.51% higher. The result of bullishness in the equity markets was pressure on equity market volatility. The CBOE NASDAQ-100 Volatility Index (VXN) dropped 11.80% on a week over week basis to close at 13.45. This is the lowest close for VXN in 2014.



The leader of last year was the Russell 2000 (RUT) and the domestic small cap focused index has been the laggard of 2014. There was some catch up this past week with the RUT up 2.11%. However, for the year RUT is still down over 3% while the S&P 500 is up close to 3%. The strong RUT performance put pressure on RVX which finished the week at 17.69.


With low volatility comes contango and that’s what we have for both the VXN and RVX term structure curves.   This is understandable with respect to VXN. If RVX stood alone without VXN or VIX lurking around for comparison I think we may see a higher level in RVX based on the performance of RUT this year.


Last Week in Emerging Market Volatility – 5/26/2014

The iShares MSCI Emerging Markets ETF (EEM – 43.14) had a pretty tame week this past week gaining about half a percent. The VXEEM action can be described as a grind to the downside as EEM moving higher with little volatility behind the move.



It could be said that EEM rising was despite what was going on in the Brazilian market. The iShares MSCI Brazil Capped ETF (EWZ – 47.83) lost almost 3% last week as some weak economic numbers weighed on Brazilian stocks. VXEWZ ticked higher rising a little over 2%.


The term structure curves for both VXEEM and VXEWZ remained in contango despite the pressure on Brazilian markets. This would be expected from VXEEM since the underlying ETF moved up last week. With respect to VXEWZ it could be an indication that the market is shrugging off the 3% drop in EWZ as a short term pull back and not the indication of the beginning of some sort of sustained correction.


Last Week in Volatility Indexes and ETPs – 5/26/2014

I will review the impact of a three day weekend when I focus directly on VXST in a later post. However, VXST did close on Friday at 9.49 which creates a new all-time low breaking the previous record set on January 10 of this year. CBOE has VXST history going back to the first day of 2011 and before 2014 VXST had never closed under 10.00. In 2014 we have a couple of instances of VXST settling the day below 10.00.

The other volatility indexes that are based on the S&P 500 also finished the week lower. VIX closed just 0.06 higher than the post 2008 low of 11.30. We seem to be entering the summer with the sort of market complacency that accompanies vacations and cooking out.


The volatility related ETPs reacted as would be expected being drug down with lower VIX and the VIX futures markets trading lower as well. Do note that June VIX is the front month and is a heavy contributor to the performance of VXX, TVIX, VIXY, VIIX, and UVXY. On Friday these funds were all comprised of 83% June and 17% July futures.


Last Week in VIX – 5/18/2014

VIX experienced one of those short lived spikes (I may be being generous with that word) that have become the norm. I’m referring to the price action on Thursday last week which is the only green bar on the chart below. On second thought I’m pretty certain that spike is too generous since the high on Thursday was lower than on the previous Friday. Maybe the better term would be ‘upward blip’.



With only two trading days remaining until expiration the May VIX future went out at a 0.81 premium to the spot index. I assume this is a weekend fear premium and studying the last weekend premium is on the extended list for my summer intern that starts on Monday. Also, Monday morning we’ll see if that premium shrinks quickly depending on how the S&P 500 and spot VIX begin the day.


Finally, Steven Sears kind of stole my thunder in the Striking Price column in Barron’s this weekend. He notes that a couple of derivative strategists are suggesting taking advantage of the low level of VIX to shop around for cheap VIX calls. One trade he points out involves buying VIX Jun 15 Calls and selling VIX Jun 20 Calls. Also, on Monday there was a buyer of 40,000 of the VIX Jun 18 Calls that paid between 0.60 and 0.64 cents per option.

Finally, here’s an interesting perspective on what it would take to get VIX to remain at high levels (shameless promotion warning – this author is quoted in this article) –

Last Week in Gold and Oil Volatility – 5/18/2014

When we approach VIX in a historical context we often talk about VIX in terms of 2008. For instance saying something like, “VIX made a post-2008 low on so and so day”. For the CBOE Gold ETF Volatility Index (GVZ) the reference point has been April 15, 2013. For those with short memories the price of gold dropped dramatically over a two trading day period between April 11, 2013 and April 15, 2013. GVZ also was up over 100% over those two days. This past week GVZ was at a post April 15, 2013 low in the 13’s. Interestingly the last time GVZ closed lower was on April 9, 2013 – two days before there was a crash in the price of gold. Since GLD only rose 0.40 last week the low GVZ should not be too surprising.


The implied volatility of USO options remains at a pretty low level as well which continues to perplex market participants. The OVX closing at 15.42 on Friday is the third lowest closing price on history with lower closes occurring toward the end of December in 2013. OVX is also at a low level despite oil futures over $100 and USO climbing over 5% last week.


Both pricing curves are not terrible steep despite low price for the underlying indexes which may be taken that the market thinks orderly price changes are expected this summer. Of course as we saw last year in April things in the gold and oil markets can change very quickly.


Last Week in CBOE Short-Term Volatility Index Markets – 5/18/2014

VXST appeared destined to flounder around this week and then Thursday came along. As with just about every spike in near term volatility indexes over the past year or so the spike was short lived and despite rallying almost 20% on Thursday VXST finished the week at 11.00 down 1.5% for the week.



The futures curve remains pretty steep despite (or maybe because of) the low level of the VXST index. The picture is pretty similar to last week and the high level for the May 28th future relative to May 21st narrowed some, but still sticks out like a sore thumb to me. We’ll see if that extra premium is justified.


Finally, on Thursday as VXST was rallying one trader took advantage of VXST moving up and sold 500 of the VXST May 21st 18 Calls for 0.20. With VXST closing at 11.00 on Friday this trade is safe as long as VXST does not settle over 18.20 on Wednesday morning.   That’s a 65 percent move which is not unheard of, but barring some sort of unexpected event over the weekend is a bit unlikely. Again, it could happen and has happened historically, but a perfect storm that pushes the S&P 500 down in a quick and dramatic fashion would be needed.


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