The Weekly Options News Roundup – 10/9/2015

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast, online and social media outlets.

VIX Weeklys Options Are Here – This Week
CBOE added VIX options to its suite of Weeklys contract offerings yesterday.  Volume on the first day was more than 4,300 contracts, while volume through mid-day today was already approaching an estimated 40,000 contracts.  VIX Weeklys options contracts will allow investors to trade more precisely around event-driven moves in the markets.

“Volatility 411” — Michael Palmer, Group One Trading, discusses the launch of VIX Weeklys options.  CBOE TV, 10/8/15

“VIX Weeklys Options Launched – In VIX Options Chain; More Precision and Responsiveness” – Matt Moran, CBOE Options Hub

“What You Need to Know About CBOE Volatility Index (VIX) Weekly Options” – Elizabeth Harrow, Schaeffer’s Investment Research

“VIX Index Weekly Forecast Updates Coming” – Peter F. Way, Seeking Alpha

CBOE  Livevol – A Synergetic Match
CBOE recently acquired the market data services and trading analytics platforms of Livevol, Inc, a move that provides greater access to a wider range of data and analytics supporting option and volatility trading for its customers.

“CBOE-Livevol: A SenaHill Case Study”– Markets Media

Markets breathed a sigh of relief this week after the Dow and S&P 500 rallied.  The VIX Index, on the other hand, has declined for eight consecutive days heading into today, the longest such streak since February 2014.  With the VIX Index now below the closely watched 20 mark, is this signaling an all-clear for volatile markets?

“VIX Index Reflects Confidence in Stocks” – Nicole Bullock, Financial Times

“S&P 500’s Latest Trip Toward 2,000 Comes With VIX in Retreat” – Joseph Ciolli and Oliver Renick, Bloomberg

“Two Kinds of Volatility ETFs – for Investors and Traders” – Chris Dieterich, Barron’s

“VIX Below 20: All-Clear Signal, Or Intermediate Top?” – Adam Warner, Schaeffer’s Investment Research

“VIX Eases Most in 20 Months as Pressure Drops in Energy, Miners” – Joseph Ciolli and Lus Wang, Bloomberg

“August Accident Aside, Overbought VIX Trade Still Works” – Adam Warner, Schaeffer’s Investment Research


Weekly Stock Market Commentary – The Buy Signals are Piling Up

A week ago, we noted that there were three short-term, oversold buy signals. Now, more buy signals are occurring, and these are of the intermediate-term variety. The last hurdle was cleared today, when the $SPX closed above 2000.

Equity-only put-call ratios remain on buy signals, as they continue to decline from recent highs.

Market breadth has improved greatly during this most recent rally, and has now reached extremely overbought levels. That is not necessarily a bad thing, for we have often stated that we want the breadth oscillators to get strongly overbought during the initial phases of a new leg upwards in the stock market.

Volatility indices have declined as the rally has progressed, and $VIX closed below 19. That is very bullish, in my opinion, and it takes the $VIX chart out of a bearish status and puts it into bullish status.

In summary, the buy signals are piling up, and we are intermediate- term bullish.


TYVIX Weekly Update: Volatility Cools as Central Banks Grant a Reprieve

bbTYVIX Update Header

Volatility feeds off fresh news, especially the bad headlines, and it appears news of the economic slowdown in China and of its impact on emerging markets has been fully digested. It is also clear that central banks will continue to pursue stimulative policies until further notice. In the absence of further shocks, the VIX, TYVIX, EUVIX, BPVIX and JYVIX indexes turned cooler this week.  As the VIX Index decreased, its term structure came closer to contango.

Figure 1.  Weekly Update — Volatility IndexesnbFig1 10-9-15

Figure 2.  Term Structure of VIX, TYVIX Indexes and Futures nbFig2 10-9-15


VIX Weeklys Options Launched – In VIX Options Chain; More Precision and Responsiveness

Yesterday (October 8) was the first day of trading for the VIX Weeklys options, with reported trading volume topping 1,000 contracts.


A key feature of the new VIX Weeklys options is that they are in the same options chain as the standard-expiration VIX options.  This screenshot below from Bloomberg on the morning of October 9 shows that there now are VIX options expirations on Oct 21, Oct. 28, Nov. 4, Nov. 18, and Dec. 16 (in addition, there are VIX options with longer dated expirations).1 vix omon



Options on MSCI Emerging Markets Index (MXEF) – Volume of 472 Contracts on Tuesday

On Tuesday, October 6, the CBOE options on the MSCI Emerging Markets Index (MXEF) had reported volume of 472 contracts (236 call options and 236 put options).

Why are several investors expressing more interest in the MXEF options that launched earlier this year? Below are four key reasons I have heard from investors.


As shown in the chart below, many of the cash-settled index options have notional values that are much bigger than the notional values of corresponding ETF options. For example, the notional size of the new MXEF options is about 24 times as large as the notional size of the EEM ETF options. Buy-side investors often look for ways to get good bang-for-the-buck, and large-sized options have the potential to provide value and lower costs for investors. 1 - Notional size 1


On October 6 the MXEF options had higher implied volatilities at various strike prices as compared with the SPX options. Higher implied volatilities can appeal to sellers of options who wish to generate more gross premiums. 2 - Vol skew MXEF



Book It While It’s Hot

When we last left off, I wrote in detail about the long calls I bought for SVXY.  I still have those, and the update is that while they traded for only $4.64 each at the time last mentioned (versus my $8.50 buying price), the bid/ask on those has risen to $7.00/$8.30 as of this writing, with the last trade recorded at $7.49.  I keep under consideration the idea (translated: I can’t wait) of getting out of these calls as soon as I can do so for even money.  All right; it’s not really true that I’m chomping to get out of them. I would have to assess conditions at the time.  My intention is to amplify returns that I would expect to make on a particular number of SVXY shares.  I might make money on neither, though, with the shares simply turning into slimmer versions of their former selves (which allows me to retain some value and some hope for future gain – slim livestock can always fatten up) and the calls turning into dust.  That is the risk I took by buying calls.  I will evaluate the risk every day until I get rid of the menacing things.  I have until January, but dollars and time do not always equate in the way we would like, and I’m not crazy about holding a potentially depreciating asset.  This is the extended-mix way to say I am nervous owning long calls.

I will now revisit a topic too tangential to get into in the last post.  I said, “I did something else with the rest of the proceeds” of some liquidated SVXY shares.  Hmm… I could compare the loss I took on those liquidated shares and see how it lines up with the gain I booked on the following.  But I’m not going to do it, mostly because I bought and sold so many small lots of SVXY during the last several months that it would be meaningless to single out one lot and differentiate it from another.  After all, it is up to me to set “FIFO” (first in, first out) or “LIFO” (last in, first out) when I liquidate shares, and I was not even paying attention to that.  I don’t really care whether my booked gains and losses look pretty; I expect them to even out in the end with real dollars and not just beautiful ledger entries.

So anyway, on September 18th and 28th I sold some shares of TVIX short.  See detail.  It was 360 shares altogether for an average entry of about $11.31.  Today I bought all of those back to close the trade at $9.48 for a profit of $651.

A visual representation, showing the start of TVIX down the side of the mountain, is below:

Then, never content to consider a trade done and over with, I jumped back in less than one hour later (grabbing a little bit of benefit from momentary float upward in TVIX/UVXY) and sold some UVXY short at $43.79.  (By “momentary float upward” I mean that I sold UVXY short at a higher comparative-to-TVIX price than the point at which I had exited the TVIX short.) I may have to sit through some adversity on this, as I did with the TVIX trade.   My purpose in this was chiefly to convert my TVIX short to a UVXY short, with the possibility open that I can sell covered puts against this position if an attractive opportunity presents itself.

VIX Streak over 20.00 Ends at 30 – So Now What? Part 2

Yesterday I put up a blog showing what the S&P 500 did over different time periods after a streak where VIX was over 20.00 came to an end.  I got a request to show what VIX did as well, so the numbers show up in the table below.

Instead of showing percent changes I show point changes.  There appears to be a little more green on this table that there was red on the S&P 500 table.  It could be that VIX stays a bit elevated after these streaks.

VIX After Streak VIX


VIX over 20.00 Streak Ends at 30 Days – So Now What?

Even the VIX tourists were paying attention to the long running streak where VIX closed over 20.00.  The run ended at 30 today with VIX finishing at 19.54.   This was not nearly as fun as watching Pete Rose in the summer of 1978, but for some of us, it was quite a ride.  When Pete didn’t get a hit on August 1st he was asked what he would do tomorrow, his response, “I guess start another streak”.  Unfortunately we can’t stick a microphone in front of VIX and ask what is next.  However we can take a look at what was next for all the previous streaks.  In preparation for the day that VIX closed under 20.00, I did just that, and the table shows up below.

Since most of us care mostly about the stock market, I took a look at what the S&P 500 did for 20, 40, 60, and 120 trading days post starting with the day that each streak ended.  All VIX closing over 20.00 runs for 10 or more days show up on the table below.  To show the lack of pattern, instances where the stock market moved higher are in green and when the market dropped I show the performance in red.

VIX After Streak Corrected

There’s not a consistent pattern here and that’s OK.  Just because VIX is under 20.00 (for the moment) doesn’t necessarily mean the stock market is out of the woods yet.  At least not based on history.  Time will tell if today’s close signals a new bull run or just a hiccup on a move to the downside.

Signs Of Bullish Hope – Weekly Market Outlook

Despite the bearish start to the week on Monday and a bearish initial response to Friday morning’s employment report for September, the bulls managed to reversal course Friday afternoon to hammer out a big gain for that day and even a small gain for the week. A couple of the key indices even managed to climb back above their short-term moving average lines.

There’s still work to be done — from both sides of the table — if we’re ever going to get out of this rut. But, a bullish break out of the rut is once again a possibility.

We’ll paint a picture of it below, after running down last week’s and this week’s major economic announcements.

Economic Data

Last week’s economic dance-card was plenty full, but the highlight of the week was the grand finale… September’s unemployment data, unveiled on Friday. The unemployment rate held steady at 5.1%, even though payroll-creation slowed to 142,000. July’s and August’s job-growth numbers were also revised in a downward direction.

Employment Growth, Unemployment Rate Chart
Source: Thomas Reuters

It’s also worth mentioning hourly wage growth was stagnant last month.

The data is a bit of a double-edged sword. On the one hand it’s alarming to see job-growth slow down, as is suggests economic growth is stalling. On the other hand, it gives the Federal Reserve time, room, and reason to postpone any rate hike that was in the cards. The odds were still technically favoring a March hike rather than a December hike, but the odds of March being the month it begins were raised even further on Friday.

We also heard September’s consumer confidence (Conference Board) score last week. Amazingly enough – and despite the fact that the Michigan Sentiment Index score fell – consumer confidence jumped from 101.3 to 103.0, whereas economists were looking for a decline.

Consumer Confidence, Sentiment Chart
Source: Thomas Reuters

Everything else is on the following grid:

Economic Calendar


The Week in Russell 2000 Trading – 9/28 – 10/2

For the second week in a row large cap stocks outperformed small cap stocks by about 1.5%.  The big difference this week was that the Russell 1000 (RUI) was higher while the Russell 2000 (RUT) lost value.  The previous week RUI lost less than RUT, but both had pretty lousy weeks.  For the year RUI is now down a little more than 5% while RUT has lost just over 7.5%.


The CBOE Russell 2000 Volatility (RVX) index finished the week at a little over a 10% premium to VIX.  This lack of premium can be attributed more to VIX and RVX both being in the low 20’s more than a lowered risk perception for small cap stocks versus large cap.


On Wednesday the Russell 2000 closed just a tad over 1100.  Just a tad after the market closed, but before the RUT options closed (15 minutes after the equity market close) there was a decent size seller of a RUT Jun 2016 1050 – 1150 Strangle.  The trader sold the RUT Jun 1050 Put at 71 and the RUT Jun 1150 Call for 54 which gets us to a credit of 125 per spread.  The payoff on the open on June 16 next year shows up in the payoff diagram below.


I highlighted two price levels in both directions.  As long as the RUT falls in a range of up or down 4.55% in June the result is a profit of 125 per spread.  There is more than 10% more wiggle room outside of the maximum profit range the trade has a partial profit if the Russell 2000 is not up or down by more than 15.91% from Wednesday’s closing price.

The Week in VIX – 9/28 – 10/2

Despite the S&P 500 rising over 1% last week VIX remained over 20.00 for the 30th straight day although it did drop by over 11%.  This run goes back to the beginning of the heightened levels of volatility that began back on August 21st.  The curve below shows that the curve based on standard monthly VIX futures went from backwardation to kind of crooked (that’s not a technical term).  I say crooked because depending on your definition of backwardation or contango the closing curve on Friday could be considered either.

VIX Curve Table

The short term curve went from backwardation to basically flat which is what I anticipate will be considered normal.  We only have about 10 weeks of short term futures data to work with so I haven’t come to a conclusion on what will be ‘normal’ for VIX Weeklys futures.

VIX ST Curve Table

Finally, a trade example that I found pretty interesting as well as smart from Friday.  Toward the end of the day there was a ratio spread that works as long as VIX is under 35.40 at November settlement.  The specific trade sells 2 VIX Nov 30 Calls at 1.10 each (2.20) and buys 1 VIX Nov 25 Call at 1.80 for a net credit of 0.40.  Both VIX and the November contract were in the 20 to 21 range when the trade was executed so I show where both finished the week last week on the payoff below.


The Week in Volatility Indexes and ETPs – 9/28 – 10/2

Those that casually watch VIX may not be aware of the variety of volatility indexes published by CBOE.  On at least a weekly basis I take a look more than VIX and try to gain a little insight into the mind of the market.  The curve below shows the relationship of four volatility indexes that represent consistent measures of implied volatility as indicated by S&P 500 (SPX) index option prices.  What has been catching my eye since excess market volatility started to commence on August 21st is the relationship between VXV (3-month) and VXMT (6-month).  Note the section of the curve highlighted by the purple box in the chart below and I’ll explain more below.


Since August 21st 3-month volatility has been at a premium to 6-month volatility on the close 25 of 30 trading days.  Going back to early 2008 the shorter dated focused VXV has closed at a premium to VXMT about 13% of trading days with about 2 out of 3 of those closing levels occurring during what we refer to as the Great Financial Crisis in 2008 – 2009.

My interpretation of VXV being at a premium to VXMT was that the market was braced for Fed action at one of the two meetings left in 2015 (most likely December).  VXV measured the nearest time frame just after the last meeting of 2015 and the one many pundits seem to be focused upon.  With the market rally in reaction to the employment number this past Friday VXV dropped below VXMT.  I heard calls that a hike may not occur until 2016 on Friday, but I’m not one for opinions, I like to see what the numbers tell me.  Implied volatility is forward looking measure which can be used to gain insight into Mr. Market’s mind.  If VXV remains under VXMT consistently over the next few trading days I’ll see that as the numbers agreeing with the pundits looking to 2016 for the first rate hike in my children’s lifetimes.


The Weekly Options News Roundup – 10/03/2015

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

CBOE RMC Europe Recap
CBOE hosted its 4th annual CBOE RMC Europe from Monday through Wednesday this week.  Over 175 industry professionals gathered in Geneva, Switzerland to discuss the latest products and strategies for managing risk, enhancing yields and lowering portfolio volatility.  EQ Derivatives was on the scene and filed several stories:

“Investors Eyeing Mean Reversion Stick with Short VIX Positions” – Daniel O’Leary, EQ Derivatives

“Allocations to Vol Arb, Long Vol Increasing: EFT’s Berset” – Robert McGlinchey, EQ Derivatives

“Tail Risk Fund Fee Structures Come Under Scrutiny” – Robert McGlinchey, EQ Derivatives

“Systematic Strategies Becoming Distorted Amid Changing Market Structure” – Robert McGlinchey, EQ Derivatives

To see our blogs from all of the panels at this year’s CBOE RMC Europe, go to

At the conference, CBOE President and COO Edward Provost announced during his welcome address, the launch of options on three FTSE Russell Indexes, set for October 20th.

For highlights from Edward Provost’s address at RMC, go to

“CBOE Eye Options on Three FTSE Russell Indexes” – Robert McGlinchey, EQ Derivatives

“CBOE Sets October 20 for Russell 1000 Launch” – Cian Burke, Futures & Options World

“CBOE Holdings to Add New Options on FTSE Russell Indexes” – Maria Nikolova, Leap Rate

Weeklys Appetite
There is growing anticipation as we approach the launch of VIX Weeklys options, which will offer greater trading precision for market participants.   These new contracts are set to launch Thursday, October 8th at CBOE.

“VIX Active Funds Support Weeklys, VIX Weekly Option Strategies Eyed” – Robert McGlinchey, EQ Derivatives

The VIX Index retreated slightly this week, but still remained above the closely watched 20 level.  Will October bring a continued ebb in volatility or a spooky surprise?

“After Rough Quarter, Investors Buckle Up” – Mike Cherney and Saumya Vaishampayan, Wall Street Journal

“Goldman: The Options Market Says the S&P 500 Is Poised for a Major Move this Week” – Luke Kawa, Bloomberg

“The Market’s Latest Scapegoat” – Adam Warner, Schaeffer’s Investment Research

“VIX Volume Muted as Benchmark Tests New 20 Normal” – Ryan Sachetta, EQ Derivatives


TYVIX Weekly Review: Treasury Volatility Is On Sale


TYVIX Update HeaderTreasury Volatility Is On Sale  

Market participants perceive a lack of liquidity in the Treasury market and are concerned that more frequent volatility flashes will ensue. Yet Treasury traders appear complacent about short-term Treasury volatility, and are not pricing it high. The price of Treasury volatility is reflected in the spread between expected Treasury volatility (the CBOE TYVIX Index) and realized Treasury volatility. The average value of the spread represents the premium that investors are prepared to pay to avoid volatility.  As shown in Figure 1, this spread is in a low range compared with its value in previous years.

Figure 1. The price of Treasury volatility ty10115Fig1
Weekly CBOE VIX Suite Summary

The week ended amid disappointing manufacturing and weak employment statistics –10-year Treasury yields dipped below 2 percent Friday on news that U.S. nonfarm payrolls gained just 142,000 jobs and August and July monthly data was revised downward. Combined with persistent uncertainty about global growth, weaker data are pushing the expected date of an increase in the federal funds rate target further out. This has depressed TYVIX and sustained VIX. ty10115Fig2 More