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Weekend Review – VIX Options and Futures – 5/22/2016

The combination of VIX moving lower and June becoming the front month put some pressure on the June futures last week. I think maybe the lack of news flow expected over the next couple of weeks has something to do with that as well. Note the bifurcated futures performance from last week with many longer dated futures rising, which maybe could be the risk of higher rates or an ‘interesting’ presidential election hovering over the markets. Finally, I always like to periodically point out the ‘dip’ that is December futures. It’s already showing up and is due to the number of holidays that occur between December VIX expiration and the S&P 500 Index options (SPX) that are used to settle VIX in December. This year it may be also be function of the markets assuming the election uncertainty will be behind us.

VIX LT Curve Table Weekend Review – VIX Options and Futures – 5/22/2016 at vixtrade.com

Midday on Friday someone came in and got some tail risk protection for real cheap. With spot VIX around 15.50 and the June VIX futures nearly two points higher around 17.50 there was a buyer of an out of the money call spread using the standard June 15th VIX calls. In a few different lots they purchased the VIX Jun 30 Calls for 0.18 and sold the VIX Jun 40 Calls for 0.07 and a net cost of 0.11 per spread. Any volatility event between now and the market open on June 15th could result in quite the payoff as seen below.

VIX PO 3 Weekend Review – VIX Options and Futures – 5/22/2016 at vixtrade.com

 Weekend Review – VIX Options and Futures – 5/22/2016 at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 5/22/2016

With the S&P 500 zig zagging this week, but finishing up by just over a quarter of one percent the curve was little changed. With one exception, VXST dropped 10% after we got past the FOMC minutes and the markets started to look forward to nothing for the next couple of weeks. VIX and VXMT rose and VXV was lower. I can’t remember the curve shifting like this ever, but since three out of the four moves were pretty small I wouldn’t read too much into it.

VXST VIX VXV VXMT 1 Weekend Review – Volatility Indexes and ETPs – 5/22/2016 at vixtrade.com

The long VIX related ETPs came under some pressure as the front month moved to June and contango remained pretty steep. Even VVIX came down a bit last week, but I think we can attribute that to a lack of eminent and known potential market moving events until after the Memorial Day holiday.

VXX Table 2 Weekend Review – Volatility Indexes and ETPs – 5/22/2016 at vixtrade.com

SVXY topped the 10% year to date return level. Long term holders of SVYX (or those that have had the fund since the last day of 2015) earned that 10%.  What I mean by that is that at one point in 2016 SVXY was down just over 38%. Not only does SVXY give individuals a method of being consistently short volatility, but it also gives me a teaching example on how being short volatility is like picking up nickels in front of a steam roller.

VXX SVXY UVXY Weekend Review – Volatility Indexes and ETPs – 5/22/2016 at vixtrade.com

I got a question about VIX and Fridays via twitter last week. Specifically, I was asked if VIX is more likely to be lower on a Friday than any other day. I knew the answer, but wanted to update the numbers before reporting back.

The numbers below show the one-day change for VIX based on the day of week from January 2, 1990 through May 20, 2016. I highlighted both Monday and Friday to make a point about the impact of weekends. VIX is calculated to show a 30-day outlook. However, this outlook is based on calendar days, therefore the weekend has a bit of an impact on VIX. In fact, there is a weekend impact for all implied volatility as the market adjusts for the weekend on Friday afternoons. Note that VIX is down just over 60% of Fridays while VIX is higher almost 65% of Mondays. The average, not taking days into account is 52% lower and 48% higher.

VIX Day of Week Update Weekend Review – Volatility Indexes and ETPs – 5/22/2016 at vixtrade.com

 

Now the bad news. VIX futures traders adjust for this as well so the record of up versus down days for the index does not translate to the futures markets. I feel it was my duty to pass along that tidbit of news before closing out this blog.

 Weekend Review – Volatility Indexes and ETPs – 5/22/2016 at vixtrade.com >

Weekend Review – VIX Options and Futures – 5/15/2016

After starting the week off on a bullish note, the S&P 500 finished out down just over a half a percent for the week. VIX was up just a bit more than 2%, most likely being held back by weakness that was associated with the S&P 500 moving higher on Monday and Tuesday last week.

The spread between the May VIX future and spot index is pretty narrow finishing Friday at less than a point. Not only did the spread between the May futures and spot VIX index narrow, but a portion of the curve actually dropped. June through October futures were lower despite the rise in VIX. The result is a slight flattening of what has been a pretty steep curve over the past few months.

VIX Curve Table 2 Weekend Review – VIX Options and Futures – 5/15/2016 at vixtrade.com

With May expiration rapidly approaching, most traders seem to be looking beyond May to June. I saw someone Friday morning who seems to be looking out to July for a volatility spike. With VIX at 14.23 and the July VIX futures at around 18.60 someone came in and purchased 6700 VIX Jul 20th 21 Calls for 1.92 and went several strikes higher and sold the VIX Jul 20th 35 Calls for 0.42 and a net cost of 1.50. The payoff diagram below highlights all the important price levels.

VIX PO 2 Weekend Review – VIX Options and Futures – 5/15/2016 at vixtrade.com

The maximum profit on this trade comes to 12.50 per contract with July VIX settlement at 35.00 or higher. The break-even price is 22.50 and finally anywhere from 21.00 or lower the cost of the spread, 1.50, is equal to the maximum loss.

 Weekend Review – VIX Options and Futures – 5/15/2016 at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 5/15/2016

There was a slight twist in the VXST – VIX – VXV – VXMT curve last week as the shorter dated indexes rose and the two long dated indexes dropped slightly. Although unusual, I am not reading too much into this as the curve was already pretty steep and remains so after relatively small changes across the board last week.

VXST VIX VXV VXMT Curve 1 Weekend Review – Volatility Indexes and ETPs – 5/15/2016 at vixtrade.com

While updating the numbers below the first thing that stood out to me was the continued elevated level of VVIX. With VIX up a bit, but still in the 15’s the demand for VIX options remains strong. This buying pressure is usually spurred on by purchasing of VIX calls which payoff in the event there is a selloff in the equity markets and a subsequent rally in VIX. TYVIX worked back up to relatively higher levels as concerns about the US economy caused a drop in interest rates.

VXX Table 1 Weekend Review – Volatility Indexes and ETPs – 5/15/2016 at vixtrade.com

SVXY rose slightly last week and VXX was down just under 2%. The whipsaw that was last week in the stock market did put more pressure on UVXY was down by over 4% while places the fund down over 48% for 2016. I continue to marvel at UVXY being off almost 75% from 2016 highs.

VXX UVXY SVXY Big Weekend Review – Volatility Indexes and ETPs – 5/15/2016 at vixtrade.com

I’m always on the lookout for unusual trades in the VIX related ETN space. I know buying a call is not exactly the most unusual trade, but when the strike price of the call is 500% higher than the underlying market it catches my attention. Mid-day Friday over about a two-hour period, with UVXY trading between 13.12 and 13.46, someone appears to have loaded up on UVXY Jun 17th 100 Calls. Specifically, over 6,000 were purchased with the buyer paying between 0.05 and 0.07. UVXY is known for periodically experiencing tremendous upside moves, in fact the fund was up over 100% at one point in 2016. However, for UVXY to run to 100, we really would be looking at a market meltdown surpassing our experience in 2008. Also, note that these options only have five weeks until expiration, therefore the meltdown (and UVXY rally) needs to come quickly.

 Weekend Review – Volatility Indexes and ETPs – 5/15/2016 at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 5/8/2016

The S&P 500 was down 0.44% last week which places the index up only 0.65% for the year. Three out of the four S&P 500 focused volatility indexes were also lower last week, despite the drop in the S&P 500. I find the longer end of the curve holding up like it has for most of 2016 interesting as well as worrisome, at least if you are bullish on stocks.

VXST VIX VXV VXMT Curve Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com

In the ETP space VXX was down by 5.11% and UVXY lost a little over twice as much at VXX. SVXY put up a decent week gaining 4.75%. Bond volatility in the form of TYVIX was down by about 5%. VVIX remains relatively high at 88.86 which shows that despite the drop in VIX, there is still demand for VIX calls.

VXX Table Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com

The next chart is an apples to apples comparison of VXX, UVXY, and SVXY in 2016. After last week SVXY remains the only one of the three to remain in positive territory. UVXY was up as much as 100% this year before give it all back and then some.

VXX SVXY UVXY Perf Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com

UVXY closed at 15.27 on Friday, which for one trader, was an exceptional way to finish the week. About lunch time of Friday with UVXY at 16.43 a trader came in and sold 200 of the UVXY May 13th 16 Calls at 1.41 and then purchased 200 of the May 13th 19 Calls for 0.56 and a net credit of 0.85. The goal, is for UVXY to finish next week below 16, which is why I say they probably were pretty happy with what UVXY did between trade execution time and the close of business.

UVXY PO Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com

 Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com >

Weekend Review – VIX Options and Futures – 5/8/2016

VIX dropped last week, with a big part of the drop coming Friday afternoon. Note the futures followed suit, but specifically note that the front month May future gave up a little more ground than spot VIX. This is sort of common when we have an employment number. Also note how flat the curve is from July through November – the theory is that the Fed is out of play between the conventions and the election which may result in relative calm for the financial markets.

VIX Curve Table 1 Weekend Review – VIX Options and Futures – 5/8/2016 at vixtrade.com

Late Thursday a trade looking for some sort of move higher out of VIX and May VIX futures showed up at CBOE. There was a buyer of 500 of the VIX May 18th 23.00 Calls for 0.29 and sold 750 of the VIX May 18th 32.50 Calls for 0.07 each. Breaking this down to a smaller size they bought 2 of the 23.00 Calls for 0.29 and sold 3 32.50 Calls for 0.07 each – a net cost of 0.37 for each 2 by 3 spread.   As mentioned the trade occurred Thursday so the corresponding prices are Thursday’s as well. They didn’t get the volatility spike on Friday after payrolls, but they still have about a week and a half before time runs out on this trade.

VIX PO 1 Weekend Review – VIX Options and Futures – 5/8/2016 at vixtrade.com

 Weekend Review – VIX Options and Futures – 5/8/2016 at vixtrade.com >