Weekend Review – Volatility Indexes and ETPs – 6/20 – 6/24

Global stocks took it on the chin Friday after the outcome for the vote in Britain determined that the majority of voters want to break from the European Union. Usually I show the week over week change for VXST, VIX, VXV, and VXMT to lead off this blog. Because the week over week change doesn’t tell the full story I included the closing prices from Thursday as well.


The lowest line on the chart shows the closing levels for each of these S&P 500 oriented volatility indexes the day before the US stock market reacted to the news out of Britain. Two things stand out on this chart. First, the line is lower than last week’s close which shows that the one day move for volatility was greater than the week over week move for each index. Something else that stands out is the relative level of VXST to VIX. VXST is a nine-day measure of volatility as indicated by very short dated SPX option pricing. Regardless of how certain the bookies were in Britain with respect to the vote going ‘remain’ the option market was poised for a bit of short term risk.  Sometimes the financial markets are smarter than the gambling houses.


Why A Non-Directional Trade Did Well Today Despite the Big Move

Trade #1 did absolutely great today, and it was a basic non-Directional trade that made 20% today with the market going drastically against us. The trade was a balanced Butterfly trade in SPX in the August 19 expiration, and the width of the Butterfly was 40.The trade was put on yesterday when SPX was around 2105.The trade was put on using all Calls. Here is the trade using a 1 contract example. Buy 1 2065 and sell 2 2105’s and Buy 1 2145. I bought some units at $5.40, $5.30, and $5.20. A unit could be 1-2-1 or 2-4-2 or 3-6-3, whatever size you are trading at. In this trade, we want the price of SPX to be near the short strike of 2105. Today at around 9:45 am central time, SPX was around $2059 and I got out of my entire trade that I bought around $5.30 and sold it for a $6.40 Credit, a return of about 20%. How did that happen with SPX moving about 50-60 points from the short strike, which is bad for this trade? Did theta get us the high return in 1 day? No. VIX was up about 3 points at 8:45 am central, this is a short Vega trade, shouldn’t an increase in Implied Volatility hurt an Short Vega at-the- money Butterfly trade? It should, but this was a bit of an unusual situation. Usually when SPX closes around $2110 which it did yesterday, the VIX would be between 11-15 because if SPX is 30-35 points from its all time high, VIX would be in the lower end of the range. But yesterday the VIX was around 18 because of the UK vote, sort of an Earnings situation for the market, an Event that could trigger a big Gap move. With VIX up about 3 at 8:45 am central, we still made money from the implied Volatility because the Volatility increases in the individual strikes of our Butterfly worked in our favor. Just because the VIX went up doesn’t mean we had to lose on a short Vega trade. The key is what happened with the volatility of each of the strikes of the Butterfly combined.

The Weekly Options News Roundup – 6/24/2016

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

 VIX Futures Hits Its Note
The CBOE Futures Exchange (CFE) announced today that VIX Futures hit a new record during its DSC_0368extended hours trading session following the announcement of a British exit from the European Union. An estimated  235,000 contracts changed hands, surpassing its previous record of 140,811 contracts set in August 2015.  VIX futures trade nearly 24 hours a day, five days a week, with the extended trading hour session designed to allow overseas investors access to volatility products in real time as events like “Brexit” unfold.   For more information see Press Release.

Once Upon A Time
CBOE has a unique story that sets it apart from other financial exchanges and allows it to remain at the forefront of technological innovation with the creation of new products that give investors the ability to better target hedging activities.  There are many chapters to this story and most recently, CBOE partnered with Social Market Analytics (SMA) to create actionable sentiment-based social media analytics for markets measurement. See what happens when CBOE’s Russell Rhoads applies this social sentiment to the Brexit phenomena on the Options Hub.

“CBOE Acts Like A Tech Original Equipment Manufacturer” – Jonathan Salem Baskin, Forbes

“What Is The CBOE” – Dan Caplinger, The Motley Fool

Investors were greeted this morning with the historic news that the U.K. voted to leave the European Union, creating a global free fall throughout Markets.   The Dow Jones Industrial 20160624_083353Average opened approximately 500 points lower; meanwhile, the VIX steadily rose throughout the week in anticipation of more volatile markets, now up 47% on the week.  For now, it seems market bears have come roaring out of hibernation.

“VIX ETF Trading Goes Bananas” – Chris Dieterich, Barron’s

“Hedge Funds Are Shorting The VIX Big Time” – Chris Dieterich, Barron’s

“Buckle Up! Volatility Seen Lasting Through Thursday’s Brexit Vote” – Benzinga

“Wall Street’s ‘Fear Gauge’ Rears Up As Brexit Vote Approaches” – Mark DeCambre, Market Watch

“VIX Up. Stocks Swings Down. Investors Expect Trouble Beyond Brexit” – Saumya Vaishampayan

“VIX Shows Traders Are Worried About A Lot More Than ‘Brexit’ – Chris Dieterich, Barron’s

“VIX Tumbles As Brexit Fears Recede” – Chris Dieterich, Barron’s

“VIX Logs Highest Close Since Feb As Brexit Looms” – Financial Times

“What the VIX Is Telling Us About A Post-Brexit Move” – Simon Maierhofer, Market Watch


A Quick Thought on VIX Price Action Today

I’m in New York today and have been in contact with several different types of market participants. A common theme in the conversations I’ve had about today’s action was that VIX seemed too low relative to the panic going on in global equity markets. VIX in the low 20’s didn’t have the feel of a market panic equivalent to the S&P 500 losing over 3%. However, it is worth noting that VIX moved higher overnight, but has been hovering in a range most of the day. The equity markets adjusted to the reality of Britain moving out of the EU, but did so in sort of an orderly way. I can only venture to guess whether VIX not overreacting had a calming effect and gave buyers confidence in the markets or if the equity markets gapping down, but then not gapping lower resulted in VIX not climbing to higher levels. This is a debate that you can take the either side of. I do know that VIX adjusted higher and the equity market adjusted lower and VIX did not indicate full blown panic in the move.

Earnings Next Week – 6/27 – 7/1

It is a very quiet week as once again only four companies with short dated options will be reporting earnings.  As always the data below is based on the last three years of earnings results.  The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings.



Skew Charts Show Higher Implied Volatility for O-T-M Puts on SPX, RUT, EFA and FXB

After the results of the Brexit referendum were announced , the values of several volatility indexes at CBOE shot up, indicating that overall implied volatility had increased for many securities worldwide. A key issue for some cautious investors who want to hedge is – what are the implied volatilities for various out-of-the-money (O-T-M) put options that can be used to hedge my portfolio?  

Below are Livevol skew charts for four key securities – SPX, RUT, EFA, and FXB – that show global implied volatility this morning at various strike prices and maturities. The O-T-M put options generally had much higher implied volatility than the at-the-money or in-the-money put options. CBOE  now offers both Wednesday and Friday expirations on S&P 500 (SPX) options. www.cboe.com/SPX. Also note that the CBOE SKEW Index recently closed at 145.70, one of its highest levels in history. www.cboe.com/SKEW.





The CBOE Futures Exchange, LLC (CFE®) today announced record volume was set in VIX Futures traded in non-U.S. trading hours with an estimated 235,000 contracts changing hands. Today’s record surpasses the previous single-day record of 140,811 contracts set during the overnight session on August 24, 2015.

VIX Futures Set Overnight Volume Record

The CBOE Futures Exchange, LLC (CFE®) today announced record volume was set in VIX Futures traded in non-U.S. trading hours with an estimated 235,000 contracts changing hands. Today’s record surpasses the previous single-day record of 140,811 contracts set during the overnight session on August 24, 2015.

With the addition of today’s trading data, monthly volume in VIX Futures in non-U.S. trading hours also set a record, with June volume traded in the overnight session totaling an estimated 753,000 contracts for the month so far, surpassing the prior record of 650,454 set in January 2016.

The jump in overnight trading volume followed a drop in global markets after the Thursday night release of results of the U.K. referendum in which voters decided that Britain should leave the European Union.

VIX options and futures enable investors to trade volatility independent of the direction or the level of stock prices. Whether an investor’s market outlook is bullish, bearish or in between — VIX options and futures offer the ability to diversify a portfolio or hedge, mitigate or capitalize on broad market volatility.

About CBOE Futures Exchange

CBOE Futures Exchange (CFE) currently offers contracts on CBOE Volatility Index (VIX Index) futures (VX), S&P 500 Variance futures (VA), CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) futures (VXTY) and CBOE Russell 2000 Volatility Index (RVX) futures (VU).

VIX futures are available for trading nearly 24 hours a day, five days a week at CFE, beginning Sunday at 5:00 p.m. CT and ending Friday at 3:15 p.m. CT. CFE closes for 15 minutes between 3:15 p.m. CT and 3:30 p.m. CT, Monday through Thursday, after which the next trading day begins at 3:30 p.m. CT. For additional details on extended trading hours, see www.cboe.com/ETH.

CFE, an all-electronic market, is a wholly-owned subsidiary of CBOE Holdings, Inc. (NASDAQ: CBOE). CFE is regulated by the Commodity Futures Trading Commission (CFTC) and all trades are cleared by the OCC. More information on CFE and its products, including contract specifications, can be found at: http://cfe.cboe.com/.


14 Volatility Indexes (including VXEFA, JYVIX & VIX®) Rise by More Than 10% Friday Morning

After the news of the results on the Brexit referendum were disclosed, implied volatility for many key securities worldwide rose, and the values of 14 volatility indexes at CBOE – (tickers: VXEFA, JYVIX, EVZ, VXO, VIX®, VXN, VXGS, VXXLE, VXD, EUVIX, VXIBM, VXST, VXGOG, and RVX) – rose by more than 10% by 9 am CT on Friday, June 23.


To see updates on price movements for 29 volatility indexes, visit www.cboe.com/volatility.


Reported trading volume in VIX futures surpassed 170,000 contracts Friday morning. The table below show that some of the VIX futures contracts had risen by more than 2 points by 9:20 a.m. CT on June 23. www.cboe.com/VIX



Checking in on the VIX Overnight Action

Things are moving faster than I can type this morning, but here’s a quick update and some perspective on the overnight VIX action in response to Britain voting to exit the EU. Global stock futures are lower and we all know that results in higher volatility. The curve made a pretty dramatic shift with VIX rising over 40%.

VIX ON Table

The table above only shows the monthly contracts, but it is worth noting that the VIX Weekly Futures contract expiring next Wednesday was up about 40% to 22.50 when I last checked. Finally, since we will be all about the biggest move in context, the table below shows the ten biggest one-day percent moves for VIX using the 6:30 am price for today. So far the VIX move would be the 7th biggest on record, but the day is still young.

VIX Daily Ranking

Looking back a few extra hours it is worth noting that on Thursday VIX dropped 18.52% to finish the day at 17.25.  This was actually the 15th biggest drop on record for VIX.

VIX Drop Table

A Final Look at #Brexit from Social Market Analytics

This morning our friends at Social Market Analytics offered up a final look at the twitter chatter with respect to the vote in Britain tomorrow that will determined the country’s fate with respect to EU membership. The hashtag #Brexit was mentioned 139,758 times in the 24-hour period ending this morning. The chart below shows how often other hastags were combined with #Brexit. #voteleave and #leaveeu were mentioned 33,751 times in conjunction with #brexit. Hashtags that indicate a preference to stay in the EU (#remain, #voteremain, and #strongerin) were mentioned a total of 21,721 times showing that at least those using #Brexit in their commentary are leaning toward voting to leave the EU.

Brexit 622



Taking Apples from Somewhere Near the Top of the Tree

The best way to tell a story (well, maybe not always) is to tell it in the order in which it happened. In this case, I’ll start where I left off, and that means to describe the mystery position I took at the end of the last post. I made mention of it, but did not divulge it. It turns out I opened and closed that position all on the same day, so that by the time my last article went to press, it was already in the can. Here’s the rundown for my June 3rd open/shut:

Pictorial illustration of the entry and exit that day which completed the trade:


Weekly Market Outlook – Will Support Hold?

The bulls did everything they could to get the rally back on track last week after the early breakdown. But, it just wasn’t meant to be. Once the S&P 500 (SPX) (SPY) fell under the 50-day moving average line on Wednesday, the index — despite trying — just couldn’t climb back above it. When all was said and done, the market lost 1.18% of its value last week.

Still, stocks have a few rabbits they could pull out of a hat and move higher rather than losing any more ground. And, even if they do, there’s still a ton of support not too far below where the S&P 500 ended last week. We’ll look at those floors after looking at the more important economic news from last week and this week.

Economic Data

Last week was loaded with economic news. We can’t cover all of it, but we will hit the highlights in orders of appearance.

The first biggie came on Tuesday… May’s retail sales figures. They were solid, up 0.5% overall, and up 0.4% when taking automobiles out of the equation. Total consumer spending was up more than expected, thanks to cars. The only weak link on the retail sales front is gasoline stations (and we know why), but even there we’ve seen three straight months of rising sales.

Retail Sales Chart


Source: Thomson Reuters

Note that on a year-over-year basis, retail spending was up about 2.0% regardless of the stratification. There’s no way of saying a lack of consumerism is a pitfall for the economy right now.

On Wednesday and Thursday we heard May’s producer price inflation and consumer inflation numbers. On both fronts they were about as strong as anticipated, on a core as well as a non-core basis. On an annualized basis, overall consumer inflation stands at a rate of 1.0%, but on a core basis it’s right around the Fed’s target rate of 2.0% with a reading of 2.2%. Overall annualized producer inflation is stagnant — at 0.0% — and core producer inflation is a tame 1.2% on a year-over-year basis.

Inflation Chart


Source: Thomson Reuters

No matter how you slice it, inflation is under control, giving room to the Fed to wait on any rate hike. The only real justification for a rate hike based on the current inflation picture is the notion that it’s rising. Janet Yellen may feel like she needs to quell it before it does race to debilitating levels. With not much else about the economy getting overheated though, even this “containment” argument feels a little flimsy.

Also on Wednesday we got May’s capacity utilization and industrial productivity report. These were already retreating, but with last month’s contractions they’ve become an outright liability. Utilization rates fell from 75.2% to 74.9%, and production slipped 0.4%. Oil’s demise may get the bulk of the blame, but it’s starting to have a ripple effect on other parts of the economy. The downtrend for capacity utilization and the stagnation of industrial production has lasted a little too long now.

Capacity Utilization and Industrial Productivity Chart


Source: Thomson Reuters

Finally, on Friday we got May’s housing starts and building permits. Starts were better than expected, and in line with April’s starts. Permits fell a little short of estimates, but were a bit better than the reading from a month earlier. Still, as our longer-term chart of that data indicates, we’re seeing a measurable slow-down on both fronts. That’s not necessarily bad for real estate, but it is a red flag for residential construction stocks.

Housing Starts and Building Permits Chart


Source: Thomson Reuters

Everything else is on the following grid:

Economic Calendar


Source: Briefing.com

This week is going to be considerably lighter. The only items of real interest are May’s existing home sales (on Wednesday), and new home sales (on Thursday). The pros say existing home sales should perk up a bit, but there’s just no way the new home sales pace will be able to post a repeat performance of April’s heroic pace.

New Home, Existing Home Sales Chart


Source: Thomson Reuters


Jobs Report Shocks the Federal Reserve into Submission

There is no doubt the Federal Reserve committee dialed it back significantly from the recent ‘rate hike’ rhetoric we have been hearing about lately.  It was only a month ago we heard most of the Fed Governors boldly claim a rate hike was coming and probably sooner than everyone believed. However, they presented a mixed picture of the economy, seeing some growth areas but weakness in others.

This from their recent statement:  Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

They were miffed as the market was not pricing in a potential hike in June or even July, so a bit of lip service was all that was need to take Fed Funds Futures expectation from 7% probability to 38% probability for a June hike around the beginning of June.  Sometimes the market listens up to such warnings, and indeed equity markets did pull back in mid-May from those warning shots.  However, the drop was short-lived and the bulls too control, taking the SPX 500 right near all time highs once again. It seemed the stock market ‘agreed’ with the Fed that a rate hike coming was going to be okay – yet the bond market thought otherwise.

The markets rarely if ever get it wrong, and that is so often true about the bond market.  We have not seen an appreciable rise in yields in a long while, hence the outlook for the economy by the bond market has been spot on – weakening until further notice.  Make no mistake – that jobs report is a major red flag that may portray trouble on the horizon. This caught the Fed off-guard for sure.  An economy growing at 2% a year does not have much slack to work with before heading into a recession.  Is the Fed happy about 2% growth?  Of course not, especially when potential is greater.  But without aggressive fiscal policy, it’s what they have to work with.

The very weak jobs report lit a fire under the Fed Funds Futures as the odds for short term rate hike diminished considerably, and market volatility started to rise once again from the ashes.  How confident the Fed seemed to be about raising interest rates was thrown into doubt yet again, the Fed statement showed they would take cover behind weak data and the uncertainty over the ‘brexit’ vote.

Yet, the jobs report was a shot across the bow, and the Fed knows it.  Last week St Louis Fed President James Bullard stated he expects no more than ONE rate into 2018.  KC Fed President Esther George, often a dissenter on the voting panel decided to make policy unanimous.  This is a notable shift.  Perhaps she sees things are becoming a bit worse than they had been.  One jobs report does not make a trend, and with a weak June report on July 8 they could dial it down even more – but it’s getting tight and very little room left.

Weekend Review – Volatility Indexes and ETPs – 6/13 – 6/17

The VXST – VIX – VXV – VXMT curve moved from contango to an unusual shape this past week. Lots of things point to the markets being concerned about next week’s ‘should I stay or should I go’ vote in Britain. VXST represents short term SPX option volatility and the options that expire just after the vote are feeding that calculation.  I’m going to say results in VXST finishing the week at such an elevated level last week have a little to do with Brexit.


With the big move up in volatility last week, VXX and UVXY both had a good time respectively rising about 8% and 15%. On the flip side of the equation SVXY gave up most of the 2016 gains losing about 10%. I also would like to highlight TYVIX which closed much higher, even though the Fed announcement is behind us. I guess this vote is causing concern across all financial markets. Finally, I would be remiss without noting that VVIX finished the week just over 115.

VXX Table

As mentioned, SVXY took it on the chin last week, but is still slightly in the green for 2016. Both VXX and UVXY had good weeks, but need a few more good weeks just to get back to even on the year.


One trader appears to be looking for volatility to move lower next week and expressed this opinion through selling a put spread on SVXY. Remember SVXY is the inverse of VXX on a daily basis so if VIX futures move lower next week then SVXY will benefit. With SVXY at 52.05 the trader sold the SVXY Jun 24th 44.50 Put for 1.01 and then purchased the SVXY 39.00 Put for 0.46 and a net credit of 0.55.


Note the short strike in this put spread is down about 17% from where SVXY was trading when the spread was initiated. Seeing that got me to do some digging. SVXY has been around since 2011 and we have 245 weekly observations. Of those 245 weeks, only 9 weeks have experienced a drop of 17% or more. Taking things a step further I decided to check into how often SVXY has lost enough value to hit the long strike on this put spread. That would involve a drop of about 33% and it has never happened (not saying it can’t, it just hasn’t) as the biggest one week drop for SVXY since inception is just under 26%.