Ten Year Chart Of VIX Index ......... [spike is 2008 crash ] ...*


Share |

A Quick Look at Overnight VIX Price 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 A Quick Look at Overnight VIX Price Action at vixtrade.com

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 A Quick Look at Overnight VIX Price Action at vixtrade.com

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 Quick Look at Overnight VIX Price Action at vixtrade.com

 A Quick Look at Overnight VIX Price Action at vixtrade.com >

Weekend Review – VIX Futures and Options – 6/19/2016

I’ve been around long enough to remember when the time in the markets between Memorial Day and Labor Day were quiet enough for traders to spend several afternoons at Wrigley field without feeling they were missing anything. This past week no one could have gotten away with playing hooky.

As the stock market came under pressure, VIX climbed to the highest levels we have seen since February. Everyone is focused on Brexit as the ‘reason’ for the markets to be doing what they are doing. I’m going to use that excuse for a couple of things in this blog as well. First, note the curve is basically in contango despite VIX being at relatively high levels. I believe, if it weren’t for the big vote next week, that either VIX would be lower or if VIX were this close to 20.00 the July contract (which doesn’t expire until July 20th) would be at a discount to spot VIX.

VIX Curve table Weekend Review – VIX Futures and Options – 6/19/2016 at vixtrade.com

I noted in a tweet that for the first time in four years more VIX put options than call options traded for two consecutive days (Thursday and Friday). My initial impression was that this must be a sign traders are prepping for a volatility crush after the Brexit vote or at least lower VIX over the next few weeks. Well, I may have jumped the gun without all the information. The picture below shows a breakdown of today’s VIX option trading.

VIX Stats Weekend Review – VIX Futures and Options – 6/19/2016 at vixtrade.com

Note what I highlighted above, a good portion of the VIX put volume today was on the bid side. This usually indicates public orders being more sell oriented than buy oriented. If puts were being sold, it would be with the expectation of higher volatility. Also, VVIX has been very high of late, closing Friday at 115.72 which is on the historically high end and may have steered volatility bulls toward selling puts instead of buying calls.

Finally, a little more on Brexit. I took a snapshot from the LiveVol platform at the end of the day and cut out the skew chart for all the available VIX option series. Note the highest line below represents the June 29th VIX options which is the first expiration post-Brexit.

End of Day Skew Weekend Review – VIX Futures and Options – 6/19/2016 at vixtrade.com

At this time, it appears the Brexit versus Bremain vote is going to come down to the wire. We know the vote is going to happen we just don’t know the probable outcome and don’t know how the market will react. With that much uncertainty we have high VIX, high VIX futures pricing, and high skew for the June 29th VIX options.

 Weekend Review – VIX Futures and Options – 6/19/2016 at vixtrade.com >

Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran

Below are updates on (1) VIX futures, (2) SPXW Wednesday-Expiring Weekly options, and (3) the BPVIX Index.

(1.) RECORD OPEN INTEREST. Futures on the CBOE Volatility Index® (VIX®), which launched in 2004, experienced some milestones regarding open interest in recent days –

  • VIX futures open interest surpassed 500,000 for the first time on June 6;
  • VIX Futures open interest hit a new all-time record high of 501,835 on June 7. www.cboe.com/VIX.

1 VIX futuresrecord open interest Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran at vixtrade.com

(2.)  RECORD VOLUME. On February 23, 2016, CBOE launched trading of weekly options on the S&P 500® Index which expire on Wednesdays. The average daily volume for SPXW Wednesday-Expiring Weekly options grew to a record 74,114 in May, and then to 105,768 so far this month (through June 14).  www.cboe.com/SPXW.

1 Wed Exp Weekly volume Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran at vixtrade.com

CBOE’s February press release noted –

“We are pleased to further expand our SPX product complex with the introduction of SPX Weeklys with Wednesday expirations,” said CBOE Holdings CEO Edward T. Tilly. “Wednesday Weeklys, in addition to end-of-the-week expirations, will increase opportunities to trade SPX and enable investors to better target specific expirations. Wednesday Weeklys will align with VIX Weeklys futures and options, which also expire on Wednesdays, to provide greater trading flexibility for the increasing number of customers who use both our SPX and VIX product suites.”

(3.)  BPVIX RISES 322% IN 2016 (Y-T-D) ON BREXIT CONCERNS

The CBOE/CME FX British Pound Volatility Index (BPVIX) rose around 322% year-to-date (through June 16). Much of the rise in the index has been attributed to anxiety re the possible impact of the Brexit in/out referendum on June 23.

3 Volatility indexes BPVIX VIX Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran at vixtrade.com

For more information on volatility indexes, and on VIX futures and options, please visit www.cboe.com/volatility.

 Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran at vixtrade.com >

Bullish VIX Block Trade

June VIX futures and options settle Wednesday on the open so we are starting to see traders look ahead to July standard expiration. Of course those that want to be more strategic can explore the VIX Weeklys, but that is an argument for another blog.

Thursday morning, exactly an hour into the trading day there was a buyer of 8,500 VIX Jul 17 Calls at 1.99 who then sold 17,000 VIX Jul 21 Calls for 1.03 each and a net credit of 0.07 per spread. The result is a small credit and a payoff at July expiration that looks like the diagram below.

VIX PO 1 Bullish VIX Block Trade at vixtrade.com

As highlighted on the chart VIX was at 14.71 and the July futures were trading at 17.20 when this trade was executed. Odds are a spike in VIX over the next few weeks would result in our trader getting out of the spread with some sort of profit or altering the composition on the trade. However, if held to expiration all is well all the way up to just above 25.00 (25.07 to be exact) with a best case scenario of VIX settlement at exactly 21.00.

 Bullish VIX Block Trade at vixtrade.com >

Weekend Review – VIX Futures and Options – 6/12/2016

June VIX settlement is on the horizon, just two trading days and an overnight to Wednesday’s AM settlement. I mention that as a lead off in this space as I find the June futures at a premium to spot VIX kind of interesting considering VIX rose 26% last week. Admittedly, a 0.50 premium isn’t all that much, but any premium at all makes me think traders are still on edge after the S&P 500 price action last week and now going into two weeks with big known unknowns (FOMC this week and Brexit the following week).

VIX Table Graph Weekend Review – VIX Futures and Options – 6/12/2016 at vixtrade.com

I’m going to deviate a bit from my normal pattern in this space and discuss the VIX of VIX (VVIX). As the name implies VVIX is a measure of the expected volatility of the 30-day forward price of VIX. VVIX finished last week at 103.78, closing over 100.00 for the first time since February.

VVIX Daily 2016 Weekend Review – VIX Futures and Options – 6/12/2016 at vixtrade.com

To give a little perspective on VVIX I updated the chart below through Friday’s close. This shows the high – low range along with the yearly average for VVIX beginning in 2007. We usually consider anything below 80.00 as low for VVIX and over 100.00 as high. I look at VVIX finishing over 100.00 on Friday as another indication that the markets are bracing for extra volatility over the next few weeks.

VVIX Range by Year Weekend Review – VIX Futures and Options – 6/12/2016 at vixtrade.com

Finally, on Friday I came across a trade that would benefit from a move to the low 20’s for VIX. Looking out to July expiration (July 20th)  someone came in and purchased 11,600 VIX Jul 18 Calls at 2.01 and then sold 23,200 VIX Jul 22 Calls for 1.13 and a net credit of 0.25. The payoff at July expiration shows up below along with where VIX and the July VIX futures were trading when this ratio spread was executed.

VIX 3 PO Weekend Review – VIX Futures and Options – 6/12/2016 at vixtrade.com

The payoff above is based on July expiration, but I’m fairly certain if VIX runs to the 20’s there will be some profit taking. I’ll do my best to keep an eye on the 18 and 22 Calls and report back if I come across any profit taking.

 Weekend Review – VIX Futures and Options – 6/12/2016 at vixtrade.com >

BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options

On Monday the CBOE/CME FX British Pound Volatility Index (BPVIX) closed at 22.59, its highest daily close since March 2009, and the BPVIX Index has risen 161.8% so far this year (through June 6). A number of news articles have noted that the implied volatility for British Pound has risen during the past month because of concern about the upcoming June 23 Brexit referendum.

1 Vola indexes Three  BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com

Recent headlines for news stories included (1) “Pound Falls, Volatility Jumps as Polls Show Momentum for Brexit” (Bloomberg on June 5), and (2) “Sterling volatility heads higher as Leave camp builds lead” (Financial Times on June 6). In addition, Timothy Edwards posted a VIX Views blog on “Divining Brexit.”

The BPVIX Index is not tradable and there are no BPVIX listed futures or options. As the vote on Brexit approaches, traders and investors could keep an eye on the volatility skew and term structure for key listed options.

VOLATILITY SKEW FOR KEY OPTIONS

Listed options are available on the CurrencyShares British Pound Sterling Trust (FXB). The FXB delivers exposure to changes in value of the British pound relative to the US dollar. At the end of last month the open interest for the FXB ETF options was 30,874 for the FXB put options, and 8,649 for FXB call options. The next chart below shows the volatility skew for the FXB options at the close on June 6 (when the FXB closed at 141.43). Note that the implied volatility for the out-of-the-money (OTM) FXB put options generally is much higher than the implied volatility for the OTM FXB call options, indicating high investor fear about possible future downside moves of the FXB.

2 FXB Skew BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com

The two charts below show Bloomberg estimates of 30-trading-day impled volatility for five option classes. Note that for all the options classes (except VIX) in the charts below, the implied volatility at 90% moneyness is higher than the at-the-money (ATM) implied volatility, while the implied volatility for VIX at 110% moneyness is higher than the VIX ATM implied volatility.

4 Skew US BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com

A valuable tool to see long-term trends in SPX skew and investors’ concerns about catastrophic risk is the CBOE SKEW Index at www.cboe.com/SKEW.

WEEKLY INDEX OPTIONS AND TERM STRUCTURE

CBOE offers SPX Weeklys that expire on Wednesdays and Fridays, and VIX Weeklys that expire on Wednesdays. Weeklys options can provide opportunities for investors to implement more targeted buying, selling or spreading strategies. Weeklys options can help investors efficiently take advantage of market events, such as earnings, government reports, voter elections and referenda, and Fed announcements.

A May 29 Business Insider post noted that Goldman Sachs options analysts issued a report that considers the messages volatility term structure is sending. The Business Insider post stated that —

Looking at the S&P 500 implied volatility term structure, a downward hook, or “kink” as the Goldman report says, is noticed just before the June 14-15 Fed meeting. Looking at term structure, markets are pricing in volatility around the June 23rd Brexit vote, but not necessarily the June 14-15 Fed meeting nor the U.S. Presidential election. “Elevated event risk creates “kinks” in term structures,” Gregory and Timcenko wrote. “The term structure of implied volatility is typically smooth and upward sloping. Excess hedging demand around specific expirations creates kinks in the term structure and provides clues as to how event risk is being priced.”

Below are CBOE-created term structure charts with Bloomberg estimates for select dates for OTM SPX puts and VIX calls at certain strike prices. With the Brexit vote scheduled for Thursday, June 23, it will be interesting to see how implied volatility moves around that date for the key index options. You can see the term structure for many more SPX standard expiration dates at www.cboe.com/VIXTerm.

5 Term structure BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com

 BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com >