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.


VIX Death Cross Update

This past week I got to attend CBOE’s Risk Management Conference in Florida and finished my week at Oklahoma State as a guest lecturer.  When I travel like this I am not watching the markets as closely as I would like and as I updated charts this morning I nervously scanned the numbers used to create the chart below.  I say nervously because I was afraid I had dropped the ball on catching the VIX Death Cross.  It turns out I updated charts just in time.

Death Cross


Yesterday (3/4) was the first time the 1 year average closing price for VIX crossed over the 5 year average since November 16, 2007.  We all know how 2008 went, but I checked some numbers which confirmed weakness over various time periods post the death cross.  I took a look at where the S&P 500 closed 3, 6, 9, and 12 months after November 16, 2007.  Those numbers appear in the table below.

Note that the S&P 500 was lower over all four of these arbitrary time frames after the 1 year average moved above the 5 year average.  In the stock world I have heard when the 50 day moving average close for the S&P 500 moves below the 200 day moving average it is referred to as a ‘death cross’, time will tell if there is something to the VIX Death Cross.

Weekend Review – VIX Options and Futures – 3/6/2016

VIX gave up over 14% as the S&P 500 tried to work back to the 2000’s last week, falling short by 0.01.  Note the steepness of the curve below with the standard March contract at over a two point premium to spot VIX.

VIX LT Curve

The generic curve is also a bit steep, considering it is normally pretty flat.  VIX may be low, but even the short dated futures are braced for higher levels.

VIX ST Curve

With VIX under pressure on Friday, someone came in to the market using one of my favorite VIX option spreads.  There was a spread that sold the VIX Apr 18 Put at 0.98, purchased the VIX Apr 21 Call at 1.88 and then sold the VIX Apr 27 Calls for 0.84.  The net result was a cost of 0.06 and a payoff that is in danger below 18.00 and benefiting from 21.00 and higher with profits capped at 5.94 if April VIX settlement comes in at or above 27.00.



Weekend Review – Volatility Indexes at ETPs – 3/6/2016

The S&P 500 rose about 2.7% last week and shorter term volatility took it on the chin with VXST and VIX both down over 14%.  The longer dated volatility indexes were lower as well, but as show below, remain elevated compared to their respective averages last year.  You can read that as the market still bracing for higher volatility over the balance of 2016 (or at least until 6 months from now).



The long and long leveraged VIX realted ETPs were down last week with VXX dropping 10.78% and UVXY losing 21.65%.  For the year VXX is still in the green by 8.76% and UVXY is up as well, but only by 7.99%.  That financial compounding thing really does rear its ugly head with respect to leveraged funds, regardless of the underlying market.

VVIX has been getting a lot of attention as the VIX of VIX creeped to post August 24, 2015 lows this past week. When VVIX shows real complacency the first digit is a 6, so take testing the 80 level signaling calm as not being entirely accurate.

VXX Table


With SVXY rising over 10% last week, short volatility is quickly coming back as a desirable strategy.  I came across an early Friday bullish SVXY trade that is the most basic of structures, but could be a heck of a speculative trade if VIX remains in the teens and the VIX term structure remains in contango.  With SVXY at 42.05 someone came in and bought just over 100 SVXY Mar 18th 50 Calls at 0.05.  The payoff shows up below, along with Friday’s closing price of 41.55.


In order for this trade to turn a profit SVXY needs to rise to 50.05 in the next two weeks.  That’s a gain of 20.46%.  This got me to looking at the historical numbers.  There are two weeks to expiration so I took a look at historical two week performance for SVXY.  Since SVXY was launched in late 2011 we have 227 two week observations to work with.


First I did the minimum of work and noted how often SVXY was up over 20.46% in two weeks just using the two week Friday close to close prices.  It turns out that only 6 of 227 weeks (2.6%) saw SVXY close up enough for this purchase of the 50 calls to result in a break even or better trade.

However, I’m not lazy and I know we don’t have to hold trades through expiration.  Therefore I took a look at how often the high over a two week period for SVXY was greater than the 20.46% threshold, this happened 15 of the 227 weeks (6.6%).  So rounding numbers this trade has about a 5% chance of working out depending on how nimble the trader is and what happens in the volatility markets.  Either way for 0.05 one trader got very cheap short exposure to volatility with very little downside if the market doesn’t go their way.

The 32nd Annual RMC and Key Indexes – VVIX, SKEW, VIX, SPX, OVX, and WPUT – By Matt Moran

On February 29 – March 2 I attended the 32nd Annual CBOE Risk Management Conference  at the Hyatt Regency in Bonita Springs, Florida, and I was pleased to view several presentations by excellent speakers, including keynotes by Leo de Bever, PhD, Former CEO, Alberta Investment Management Corp., and by Jim VandeHei, Co-Founder, President, and CEO of POLITICO.
In preparing for RMC, I looked at a number of indexes and charts as shown below.


An RMC session on March 1st discussed “Volatility of Volatility and Other Facets of VIX Options.” The two charts below show the relationship since January 2008 between the CBOE Volatility of Volatility Index (VVIX) (which had a daily closing high of 168.75 in 2015) and volume on the options on the CBOE Volatility Index® (VIX®).

Tw-01-VVIX Indx & VIX opt adv
Here are the average daily closing values for the CBOE Volatility of Volatility Index (VVIX) in three key years –

  • 81.9  Avg. daily close in 2008
  • 79.8  Avg. daily close in 2009
  • 94.8  Avg. daily close in 2015

A volatility investor could ask this question – how might the levels of the VVIX Index impact the volume and open interest for VIX call and put options?


The next two charts show the relationship between the CBOE SKEW Index (SKEW) and SPX options volume since January 2008.

Tw-02-SKEW Indx & SPX volume

Historical data for the SKEW Index go back to 1990; here are the average daily closing levels for the SKEW Index in select recent years —

  • 113.7 Avg. daily close in 2008
  • 118.1  Avg. daily close in 2009
  • 122.4  Avg. daily close in 2013
  • 129.8  Avg. daily close in 2014 (the highest-ever average for a calendar year)
  • 127.5  Avg. daily close in 2015

It is interesting to note that in 2014 the VIX Index averaged 14.2 (and some people asked if the VIX was low relative to worldwide anxiety), but the SKEW Index averaged 129.8.


The next two charts show the relationship between the VIX Index and VIX futures volume since January 2008.

Tw-03-VIX indx & VIX fut volume

While the long-term average daily closing value for the CBOE Volatility Index® (VIX®) since 1990 is around 19.8, here are the average daily closing values for VIX in select recent years —

  • 32.7  Avg. daily close in 2008 (the highest ever average value for a calendar year)
  • 31.5  Avg. daily close in 2009
  • 14.2  Avg. daily close in 2013 and in 2014
  • 16.7  Avg. daily close in 2015


The next two charts show the relationship between the OVX and VXEEM volatility indexes.


Here are the average daily closing values for the CBOE Crude Oil ETF Volatility Index (OVX) in select recent years –

  • 52.0 Avg. daily close in 2008
  • 22.5 Avg. daily close in 2013
  • 23.1 Avg. daily close in 2014
  • 45.0 Avg. daily close in 2015

With the plunge in crude oil prices over the past year, the OVX Index has risen substantially.


An RMC session featuring speakers from the University of Chicago, Office of Investments, and from UBS Securities, discussed “Tail hedging within an institutional portfolio framework.” In the past 16 years the S&P 500 Index had two very significant drawdowns.

Tw-05-SPX Index


A new paper is authored by a Professor of Finance at the University of Illinois at Chicago — Oleg Bondarenko. An Analysis of Index Option Writing with Monthly and Weekly Rollover. (2016). From 2006 to 2015 (CBOE introduced Weeklys options in 2005), the average annual gross premium collected was 24.1 percent for the PUT Index and 39.3 percent for the WPUT Index, the study found. While a one-time premium collected by the weekly WPUT Index usually was smaller than a one-time premium collected by the monthly PUT Index, the WPUT Index had higher aggregate annual premiums because premiums were collected 52 times, rather than 12 times, per year, and there is greater time decay for options as they approach expiration.

Tw-07-Premiums by Oleg

For more information on 30 volatility indexes and 27 benchmark indexes, please visit and

New Study by Black and Szado Analyzes Six Options-Based Benchmarks – BXM, PUT, BFLY, BXMD, CMBO, CNDR – By Matt Moran

A new study examines six benchmark indexes that write S&P 500® (SPX) index options, comparing their performances with those of traditional stock, bond and commodity benchmark indexes. The study, “Performance Analysis of CBOE S&P 500 Options-Selling Indices,” is the first comprehensive study that examines the performance of options-strategy benchmark indexes that incorporate iron condor and iron butterfly strategies. Commissioned by CBOE and co-authored by Keith Black, Ph.D., CAIA, CFA, managing director of the Chartered Alternative Investment Analyst Association, and Edward Szado, Ph.D., CFA., assistant professor of finance at Providence College and director of research at the Institute for Global Asset and Risk Management (INGARM), the study analyzed benchmark index performances for the 29½-year period from mid-1986 to the end of 2015. The options-based benchmarks studied were the CBOE S&P 500 BuyWrite Index (BXM); CBOE S&P 500 PutWrite Index (PUT); CBOE S&P 500 Iron Butterfly Index (BFLY); CBOE S&P 500 30-Delta BuyWrite Index (BXMD); CBOE S&P 500 Covered Combo Index (CMBO); and CBOE S&P 500 Iron Condor Index (CNDR).

Key findings of the study included:

1. PUT INDEX HAD HIGHEST RISK-ADJUSTED RETURNS, WITH RICH PRICING FOR INDEX OPTIONS. The PUT Index had the highest risk-adjusted returns (as measured by the Sortino Ratio, Sharpe Ratio, Stutzer Index and M2) of all the 10 indexes in Exhibit 7. The PUT Index engages in cash-secured writing of one-month SPX put options every month. A key source of strong returns for the PUT Index was the fact that the SPX index options usually were richly priced in recent decades.

1 - Risk-adj returns

2. HIGHER RETURNS. In comparing the performance of 10 benchmark indexes over a 29½-year-period, the indexes with the highest annualized returns were the BXMD (10.66 percent) and the PUT (10.13 percent).

2 - Ann returns BXMD PUT

3. LOWER VOLATILITY. The indexes with the lowest annualized standard deviation were the CNDR (7.23 percent) and PUT (10.16 percent).

3- Standa deviations thru 2015

4. LESS TAIL RISK FOR CNDR AND BFLY. A histogram analysis reflected a lower occurrence of large losses or large gains (less tail risk) for the options-selling indices than for the S&P 500 Index. Looking at monthly returns in the 29½ years between July 1986 and December 2015, the authors found the S&P 500 Index posted 15 months of losses worse than 6 percent during the period, while the CNDR Index logged 10 months worse than 6 percent and the BFLY two months worse than 6 percent. The out-of-the-money (O-T-M) puts purchased help lessen the risk of big monthly losses for key options-based benchmark indexes.

4 - CNDR P&L

5 - BFLY Histo5.5 PUT histo
5. GROSS PREMIUM RECEIVED FOR A-T-M AND O-T-M OPTION SELLING. Exhibit 12 shows the gross premium earned by writing calls for the BXM and BMXD indices as a percent of the level of the underlying S&P 500. If the calls expire out-of-the-money, this premium reflects income generated by the strategy. This income will be mitigated by the extent to which the calls expire in-the-money. The exhibit reflects the higher premium generated by the at-the-money calls of the BXM index. While the BXM Index generated more gross premiums than the BXMD Index, note in the table that the BXMD Index had higher net returns than the BXM Index in all six of the bullish years from 2009 through 2014. The average cumulative six-month gross premium generated by the BXM Index was 10.4%, while the BXMD generated 4.6% per six-month period. While the gross premium generated is a positive number, please see the net returns table below and note that the option-selling indexes have had losses in years such as 2008.

6 - Gross premium BXM BXMD

6. CAPACITY AND NOTIONAL VALUE. The average daily notional value for volume on the SPX options rose to more than $190 billion in 2015. Fund managers examine trading liquidity and capacity when considering investment vehicles.

7 - Notional value thru 2015

7. MORE INFORMATION Visit the CBOE Benchmarks microsite for links to the new paper and to several other options-based strategy papers. For data and information on the study, please visit


CBOE Risk Management is One Week Away

One the best parts of my job as Director of Education at The Options Institute is getting to attend each of the Risk Management Conferences offered by CBOE.  Back in the Fall the running theme at both the European and Asian versions of RMC seemed to be how the markets were shifting from a low to high volatility regime.  Early 2016 price action has confirmed this.

There are five things that have me particularly excited about heading to Bonita Springs, FL next week for the 32nd Annual RMC Conference in the US.

1) First and foremost I look forward to hearing how traders and portfolio managers have been approaching the markets in 2016.  At the Asian RMC conference late last year one strategist stated that making forecasts for 2016 was one of the most difficult tasks he had faced in his career.  There are many things about the markets that have made 2016 a unique year for the markets and RMC will be a great place to hear how market participants have been dealing with it.

2) CBOE often announces new product initiatives at RMC when either Ed Tilly or Ed Provost gives the welcome address to kick off the first day.  The information is embargoed until then and I find out what’s new along with everyone else.  Ed Provost, President and COO at CBOE Holdings will offer the Welcome and CBOE Update address which I’m sure will lead to things that I will dive into almost immediately following his presentation.

3) Leo de Bever, PhD will be giving the keynote address on Tuesday morning with a discussion titled Long-Termism:  An Opportunity Work Seizing.  Until December 2014 de Bever was the CEO for the Alberta Investment Management Corporation.  Some of my academic work is centered on focusing on longer term investment results and trying to filter out the noise of short term market swings.  I hope to gain some insights from this discussion.  Also, as a side note, I am not alone among people at CBOE that are excited about this pending keynote address.

4) As I make this list I continue to go through the schedule and cannot narrow down the list of presentations.  I’m just going to say I’m just looking forward to every presentation I will get to attend.  I can’t clone myself, so I will miss presentations when we split into two tracks.  I have a game plan where I will be able to get color on the presentations I miss from Mark Sebastian of Option Pit who will be covering Risk Management for

5) Finally, we have to include the weather.  An early look shows 75 and sunny in Bonita Spring for all three days of RMC.  Although my free time is limited with blogging and tweeting along with CBOE-TV and Option Insider Radio Network duties, I do plan on trying to spend at least a few minutes outdoors.  For the golfers attending Wednesday afternoon looks like it will be perfect for networking and getting in a round of golf.

If you want to participate there is still time to register for CBOE’s Risk Management Conference.  Check out www.cboermcus.comfor all the details about speakers, the venue, and how to attend in person.

Weekend Review VIX Futures and Options 2/21/2016

VIX managed to stay in the 20’s despite the most resilient performance from the S&P 500 in 2016.  We did finally give up on the last bastion of backwardation (month 1 versus month 2) as March became the front month with February going off the board Wednesday on the open.

VIX LT Curve


The generic short dated VIX curve constructed using Weeklys futures flattened and then some last week based on the drop in VIX and a fairly light economic calendar over the next couple of weeks.  We can probably throw the end of earnings season in there as another reason volatility expectations have moved lower.

VIX ST Curve


It appears at least on trader expects VIX to remain below 23.00 for the next few weeks.  The last big VIX trade of the day on Friday was a seller of the VIX Mar 23 Puts at 2.56 who purchased the VIX Mar 24 Puts for 3.27 and a net cost of 0.71.  Usually bearish vertical spreads show up using call options, but in the world of cash settled index options it is not unheard of for a trade like this to show up on tehp ut side of the screen.  As long as standard March VIX settlement comes in below 23.00 this trade will result in a profit of 0.29, a renewal of higher volatility and settlement over 24.00 results in a loss equal to the cost of 0.71.

VIX PO Fixed

Weekend Review Volatility Indexes and ETFs 2/21/2016

VXST dropped dramatically last week and closed on the lows of 2016.  VIX managed to hold up a little better and looking at the economic calendar for next week I can kind of see why.  VXST often leads VIX so a move below 20.00 next week may not be out of the question.  After I typed that sentence I realized we are only 0.53 away from the teens so it wasn’t the most daring of market predictions.



This is the year I am going to focus more on the disconnection in performance between VXX, SVXY, and UVXY.  We all know that SVXY and UVXY offer daily inverse and leveraged performance that is offered by VXX and that over time UVXY does not return two times and SVXY does not offer the opposite of VXX.  Last week VXX was down a tad shy of 11%, while SVXY was up closer to 12%, and UVXY was down about 21%.  There was not much of a disconnect last week as the action wasn’t all that choppy.  Other things of note on the table below is SKEW rising while VVIX dropped dramatically, sort of a divergence of market reactions.

VXX Table


Despite the return to contango on trader put on a bullish VXX trade late Friday.  With VXX at 25.38 there was a buyer of the standard VXX Mar 28 Calls at 1.17 who sold the VXX Mar 33 Calls for 0.47 and a net cost of 0.60.  A home run for this trade would involve VXX over 33.00 on the close March 18th and the payoff equaling 4.40.  Anywhere over 28.60 and this trader will probably be content with stepping up during a period of backwardation to get long exposure to VXX.



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