Last Week in Short Term Volatility – 11/9/2014

The S&P 500 closed on Friday at an all-time high.  For those keeping score this is the 38th record for the S&P 500 in 2014.  I replaced the daily price chart that normally appears below with a chart showing the closing level for VXST on each of those record days in 2014.  The average for VXST when the S&P 500 makes a new high in 2014 has been 11.  The last four record highs have come over the past couple of weeks and although trending down to the average level, VXST is still a bit higher than when the market set those previous records.   In behavior terms this means the market is pricing in more risk than it has when previous records were set.

VXST All Time Highs

VXST did drop 19.35% last week as more records were set.  What I find interesting below is the far right side of the curve where despite quite a drop in VXST the futures that expire four weeks out were only down 0.30.  This sort of reinforce the view I gathered from VXST pricing in a little more risk relative to previous all-time S&P 500 highs.  It appears option traders continue to be braced for one more draw down before the end of 2014.

VXST Curve

As always – if you want to learn more about VXST visit the following link –

Last Week in Volatility Indexes and ETPs – 11/9/2014

The S&P 500 made a couple more record highs last week to bring the total to 38 in 2014.  That means that 17.5% of trading days in 2014 have resulted in a record high for the S&P 500.  I bring all that up to put the curve below in context.  The red and blue lines show the VXST – VIX – VXV – VXMT term structure curve for the past two Fridays.  The lower purple line is composite curve put together using the average close on record S&P 500 days this year.  Note that on average these four volatility indexes are at lower levels than recent curves created with closing prices.


In the exchange traded product space the long funds continue to give back performance gains from the middle of October plus a little more.  XIV and SVXY have managed to return to positive territory for 2014 after experiencing quite a draw down last month.

ETPS Indexes

Futures on Interest Rate Volatility Index (VXTYN) To Launch on Nov. 13 – By Matt Moran

Nov. 6, 2014 – A CBOE Holdings press release today noted that CBOE Futures Exchange (CFE) will launch futures trading on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) on Thursday, November 13. Futures on the VXTYN Index offer customers a way to hedge pure interest rate volatility risk based on U.S. government debt with a single product for the first time.


The price data history for the VXTYN Index begins in January 2003. The daily closing values of the VXTYN Index have ranged from a low of 3.62 on May 8, 2013, to a high of 14.72 on November 20, 2008.

1-VXTYN and Rates Line Chart Nov. 6


Since January 2003 the VXTYN has moved more than 20% on eight different trading days. On May 6, 2010, the VXTYN Index rose 47%.

2-VXTYN Daily Table

The press release noted that futures on the VXTYN® Index offer customers a way to hedge pure interest rate volatility risk based on U.S. government debt with a single product for the first time. The VXTYN Index, on which futures on VXTYN are based, is calculated by applying the CBOE Volatility Index® (VIX® Index) methodology to futures options data from CME Group’s 10-year U.S. Treasury note contract — one of CME Group’s most actively traded interest rate options products.
“The market for interest rate derivatives, by far the largest asset class in the over-the-counter market, is estimated to be 40 times the size of the equity market in terms of notional value outstanding. We’re excited to tap into this space for the first time with a product that will enable customers to better manage interest rate volatility risk,” CBOE CEO Edward T. Tilly said. “Leading up to the launch of VXTYN futures, we have worked closely with — and received encouraging feedback from — market participants most likely to trade VXTYN futures. We are also encouraged by the interest we’re seeing among ETP issuers, as well as from European and Asian customers who have exposure to U.S. interest rates, either directly or indirectly.”

Potential users of VXTYN futures could include mortgage-backed securities investors and other large credit managers seeking to hedge against adverse interest rate movements; large bond funds that are naturally long interest rate volatility and are seeking a yield-enhancing mechanism; and hedge funds, volatility arbitrage firms and global macro participants seeking to express their views on forthcoming monetary policy events or to capture mispricing anomalies between cross-asset volatility (e.g., fixed income versus equity volatility).

For more information on VXTYN futures and the VXTYN Index, see

October Recap – Biggest One-Day Changes – VXTYN Up 22.3%; VXEWZ Down 46.2%; VXST Up 48.2% – By Matt Moran

This past month was one of the most volatile months of the past three years, as the CBOE Short-Term Volatility Index (VXST) rose 48.2% on October 9, and the CBOE Brazil ETF Volatility Index (VXEWZ) hit its all-time daily closing high of 72.83 on October 20 (before the re-election of Dilma Rousseff as President of Brazil), but after the uncertainty of the election results had passed, the VXEWZ Index fell 46.2% on October 27.     

Biggest One-day in Oct


Below are four line charts that show October price movements for a total of six volatility indexes; futures and options are offered for five of the volatility indexes, and futures on the VXTYN Index are expected to be launched in a couple of weeks (subject to regulatory approval).


The CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) rose 22.3% on October 15 as worldwide stock markets were rattled mid-month.   An October 17 story at reported that – “Treasuries surged, with volatility climbing the most since the “taper tantrum” of 2013, as speculation that slowing global growth may restrain the U.S. economy led traders to raise bets the Federal Reserve will delay interest-rate increases.”

The closing values of the VIX rose from 14.46 on October 6, to 29.26 on October 16.  Trading of options on the S&P 500 Index (SPX) at CBOE set a new single-day volume record on October 15 as 2.6 million contracts traded, surpassing the previous high of 2,282,029 contracts on June 20, 2013.  Also on October 15, trading volume for VIX options was 1,832,732 contracts, a figure that was close to the all-time high. At CBOE Futures Exchange (CFE), trading of VIX futures set consecutive single-day volume records on October 14 and October 15, with 616,906 contracts and 791,638 (estimated) contracts traded, respectively.

As shown in the chart below, VIX November 2014 futures usually were in contango the first and last weeks of October, and were in backwardation on October 14 – 16.2-SPX VIX Fut Oct 2014


The daily closing highs this past month were 37.23 for the CBOE Crude Oil ETF Volatility Index (OVX) and 21.54 for the CBOE Gold ETF Volatility Index (GVZ).  An October 31 story at noted that –“Gold prices in Europe fell off a cliff Friday, dragged down by strength in the U.S. dollar. The coming end of the U.S. Federal Reserve’s asset-buying program, and strong economic growth figures, helped push up the dollar. In turn, spot gold was trading down 2.8% at $1,165.19 a troy ounce …”2-OVX GVZ


The CBOE Brazil ETF Volatility Index (VXEWZ) fell from its all-time daily closing high of 72.83 on October 20, to 31.30 after the presidential election. The CBOE Short-Term Volatility Index (VXST) hit a daily closing high of 31.12 on October 15 (the same day that the VXTYN had a big upward spike).4-VXEWZ VXST Oct 2014LEARN MORE

To read more information on how volatility-based products can be used in diversification and risk management strategies, please visit

The Brazilian Election and Volatility Market

On Monday the Brazilian equity market reacted somewhat as expected to the re-election of Dilma Rousseff to another term as president of Brazil. When I say as expected, Rousseff is not considered very business friendly and her election resulted in about a 4% drop in the iShares MSCI Brazil Index ETF (EWZ).   This 4% drop was on top of EWZ being down 23% from the 2014 high as the election date approached and the equity market started to discount Rousseff’s re-election.

The equity market adjusted for the election victory, but one Brazilian oriented market hardly moved from Friday to Monday. That market was the VXEWZ futures. Last week, leading up to Sunday’s election and subsequent market reaction on Monday the spot VXEWZ Index was as high as the low 70’s. The index finished the week at 58.16 but as the market digested the idea of Rousseff in charge for another four years VXEWZ moved down over 26 points to finish Monday at 31.30.  The front month November VXEWZ futures contract finished last week at 27.75 and was down 0.35 to 27.40 on Monday – that’s a big contrast to the change in the index.  To illustrate the Friday to Monday price change the VXEWZ term structure from last Friday to this Monday appears below.

VXEWZ Friday - Monday


Note the big drop in the index while the futures hardly moved. The index indicated the implied volatility of options that were trading just before the election as traders put on speculative positions and investors may have hedged their Brazilian exposure. The futures on the other hand settle based on where 30 day implied volatility is at expiration. The November future was discounting much lower volatility as indicated by EWZ option pricing once the election was over. Those futures contracts are still at a bit of a discount to spot VXEWZ, but for the most part were a pretty good indication of the pending drop in implied volatility. I often like to emphasize that looking only at a volatility index and not including the futures markets will not tell you to whole story of implied volatility expectations. This past weekend VXEWZ and the respective futures pricing reemphasized that line of thinking.

Options Average Daily Volume Up This Month – 1.3 Million for SPX and 1 Million for VIX – By Matt Moran

I recently showed a chart with the yearly growth in volume in options on the CBOE Volatility Index® (VIX®) to a senior executive at a financial services firm, and the executive said that the VIX options volume strong growth in recent years was hard for him to believe, in light of the fact that the VIX Index had been relatively low in recent years. I responded that the VIX options had experienced some high volume days even at times when the VIX was relatively low and not making any big moves, because some investors like to buy VIX calls and VIX futures at times when the VIX is lower than 13; they like to “buy low” and believe the VIX Index is mean-reverting; they believe the index has great potential to go up dramatically but little potential to take a dramatic fall when VIX is below 13.


While some investors prefer to buy VIX calls when the VIX is at relatively low levels, other investors engage in more S&P 500 and VIX options trades at times when the SPX and VIX indexes are moving. The options average daily volume this month (through October 23) is more than 1.3 million for SPX options and 1 million for VIX options.

VIX SPX 3 charts Oct 27

This month the closing values of the VIX rose from 14.46 on October 6, to 29.26 on October 16.  Trading of options on the S&P 500 Index (SPX) at CBOE set a new single-day volume record on October 15 as 2.6 million contracts traded, surpassing the previous high of 2,282,029 contracts on June 20, 2013.  Also on October 15, trading volume for VIX options was 1,832,732 contracts, a figure that was close to the all-time high. At CBOE Futures Exchange (CFE), trading of VIX futures set consecutive single-day volume records on October 14 and October 15, with 616,906 contracts and 791,638 (estimated) contracts traded, respectively.


The index options average daily volume so far this month is quite strong when compared to previous time periods. For example, the average daily volume for the first nine months of this year was 833,823 for SPX options and 642,115 for VIX options.


One consequence of the higher VIX value earlier this month is the fact that some options-writing strategies could have generated more options premium.  Note in the chart below, the gross monthly premium generated by the CBOE S&P 500 BuyWrite Index (BXM) on Friday, October 17, was about 1.9% of the underlying, the highest value generated in more than 20 months. The BXM Index does hold stocks and does have the potential to have monthly losses (even though the monthly gross premiums are positive).

BXM premium 2 yr

To learn more about how index options strategies can work for you in both volatile ad calm market periods, please visit

VIX Last Week

Like many people that make their living focusing on the financial markets I subscribe to @zerohedge on my twitter stream. Some of what comes from this is comical and over the top, but there are some very useful comments as well. Giving credit where credit is due @zerohedge pointed out that VIX was down 12% on Friday October 17, down 15.6% on Monday October 20, and down 13.4% on Tuesday October 21. This marks the only time in history that VIX lost 10% or more in three consecutive trading days.


The curve went from panic to calm in a very short period of time as well. I guess that is what a one week 4% rise in the S&P 500 will do. November is now the front moth future and with plenty of time to expiration it is only at a 0.84 premium to VIX. Note that December is also less than a point higher than VIX which can be partially attributed to a seasonal factor that always places a little weight on the December contract.


Finally, the last trade of note last week appears to expect VIX to stay below 20.00 for the next few weeks. There was a late seller of VIX Nov 20 Calls at 1.30 who also bought VIX Nov 24 Calls at 0.80 for a net credit of 0.50. As long as VIX remains below 20 that credit turns into a profit, another volatility event and VIX over 24 at November expiration will result in a loss of 3.50 and a less than happy Thanksgiving for one trader.


Gold and Oil Volatility Last Week – 10/26/2014

The prices of both gold and oil can often move together reacting to global events or current business conditions. Currently the two markets are both on the lower end of their historical price range, but oil is in a different place than gold. What I mean by that is that the price of oil does not appear to have any support level, at least for the moment. The chart below probably explains the situation better than I can in words.

Oil Weekly

The result is a lot of uncertainty as to just how low the price of oil may go. Where there is uncertainty there is high implied volatility and that describes the current level of OVX. Of the tradable volatility indexes OVX was the only one that rose last week.


Gold is low, but unlike the oil market is holding support as can be seen below.

GLD Weekly

The implied volatility of options on the GLD ETF drifted lower as GLD did not make any moves to test that 114.50 level that seems to have held twice over the past few months. Any violation of that level and I would not be surprised if I am writing about GVZ at much higher levels.


The curves tell two different stories. The OVX term structure is in backwardation and probably will continue to look like the graph below until USO exhibits some price support. GVZ is all about normal and continued calm.

GVZ OVX Curves

Emerging Market Volatility Last Week – 10/26/2014

The emerging market sector did not keep pace with US stocks this past week. EEM was up slightly, but the influence of the US markets had influence on VXEEM which was down almost 23% on the week.



The fun market to watch over the past few weeks has been Brazil. This weekend is the second (and final) round of national elections. The consistent expectation has been that Dilma Rousseff will win reelection, but the polls have moved to a statistical tie so the results will be worth watching this Sunday. VXEWZ was lower last week, but dropped from the 70’s to the high 50’s – both levels can be taken as there being a lot of uncertainty regarding the market’s reaction to the outcome come Monday morning.



The VXEEM term structure curve returned to a more normal shape from backwardation last week. VXEWZ shows the index at a significant premium to the from month November future contract. October went off the board last week settling at 65.80 – that may be a settlement record until the next election in Brazil.


Nasdaq-100 and Russell 2000 Volatility Last Week – 10/26/2014

The Nasdaq-100 (NDX) rebounded in sync with the other broad based indexes last week rising almost 6%. VXN responded with a drop of 22.48%. Despite NDX outperforming the S&P 500 VXN did not drop more than VIX. We are still in the midst of earnings season and with several NDX component stocks yet to report VXN is a little elevated relative to VIX.

VXN Fixed


The Russell 2000 (RUT) had a good week last week, but as has been the trend in 2014 RUT continues to lag behind the S&P 500 and Nasdaq-100. This underperformance of RUT has resulted in RVX remaining at elevated levels relative to VIX. This spread widened back out with RVX remaining over 20 and dropping only about 18% last week.

RVX Fixed

Both curves went from backwardation to basically flat. Also the newly minted front month November futures are both at a slight premium relative to the spot indexes.



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