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Weekend Review of VIX Futures and Options – 6/25/2017

VIX was a bit lower to end the week and the curve moved down as well.   We retired June last week and now July is the front month and is at a premium of just over 1.80 to finish the week.

 Weekend Review of VIX Futures and Options – 6/25/2017 at vixtrade.com

Before getting into a trade I would like to point out some heavy activity that abounded last week in the VIX Weekly options expiring this coming week.  There was a pretty big buyer of the VIX Jun 28th 19, 20, and 21 Calls paying 0.10 for the 19’s and 0.05 for both the 20’s and 21’s.  A majority of these trades occurred early this past week.  The figure below shows the open interest for each of these far out of the money VIX call options that only have two trading days remaining until expiration.  Adding the open interest for all three strikes together results in over 80,000 open positions.  That’s pretty good for many standard expiration strike and remarkable for the VIX Weeklys.

 Weekend Review of VIX Futures and Options – 6/25/2017 at vixtrade.com

On Wednesday, there were two familiar, similar, and interesting trades that hit the VIX pit.  They were familiar in structure as they involved selling a put to help pay for a call spread.  They both are looking for some sort of volatility spike between now and late July, more likely in late July than in the near future.  What makes them interesting is they were executed in a weekly or non-standard series of VIX options.  Trade one involved selling the VIX Jul 26th 10.50 Puts for 0.21, buying the VIX Jul 26th 17.00 Calls for 0.54 and selling the VIX Jul 26th 30.00 Calls for 0.15 which results in a net cost of 0.18.  The other trade sold the VIX Jul 26th 11.00 Puts for 0.45, purchased the VIX Jul 26th 15 Calls at 0.68, and selling the VIX Jul 26th 30 Calls for 0.09 which results in a cost of 0.14.  The payoff diagram below shows the outcome for both trades if held through expiration.

 Weekend Review of VIX Futures and Options – 6/25/2017 at vixtrade.com

Note both shapes are very similar with a low dollar cost up front, potential downside with VIX hovering around 2017 lows, and some great upside potential.  The thing that gets me is the timing, why the July 26th series instead of the standard July expiration the week before these options go off the board?  If may be worth checking the economic and earnings calendar to see if something specific is scheduled between those two expiration dates.

 Weekend Review of VIX Futures and Options – 6/25/2017 at vixtrade.com >

Weekend Review of VIX Futures and Options – 6/18/2017

VIX gave volatility bulls a little hope on Monday rising to the highest intra-day level since VIX was receding from the news flow that followed the firing of Comey by Donald Trump in the middle of May.  However, as is the norm, VIX dropped and worked lower with the curve following in suit.

 Weekend Review of VIX Futures and Options – 6/18/2017 at vixtrade.com

As Monday was the only day of real strength for VIX and the June VIX futures.  One trader took advantage of that by selling an out of the money call spread.  Late Monday as VIX was near 11.65 and the June VIX futures were at 12.05 a trader sold the VIX Jun 15 Calls at 0.32 and then purchased the VIX Jun 18 Calls for 0.19 taking in a credit of 0.13.  As long as standard June VIX settlement on the open next Wednesday is below 15.00 this trade will realize the maximum gain equal to the credit.

 Weekend Review of VIX Futures and Options – 6/18/2017 at vixtrade.com

 Weekend Review of VIX Futures and Options – 6/18/2017 at vixtrade.com >

Weekend Review of Volatility Indexes and ETPs – 6/18/2017

As the week came to a close VXST which measures 9-day volatility expectations took a dive.  Hence the big drop on the left side of the VXST – VIX – VXV – VXMT diagram below.

 Weekend Review of Volatility Indexes and ETPs – 6/18/2017 at vixtrade.com

TYVIX finished the week below 4.00 which was a first for 2017, but not outside of the long term historical range.  I checked the market expectations for the next FOMC meeting in late July and right now we have a 100% chance of nothing happening.  That much certainty probably justifies such a low volatility expectation.  Skew worked a little bit higher last week and VVIX was little changed which can be considered indications that there is at least some concern about the future direction of stocks.

 Weekend Review of Volatility Indexes and ETPs – 6/18/2017 at vixtrade.com

The long funds continue to experience a dreadful year in 2017 while SVXY will probably be near the top of many mid-year performance charts in a couple of weeks which always brings new (neophyte) investors into this space.  Of course the first 20% pullback will scare many away at what has historically been the best time to purchase a short volatility fund like VMIN, SVXY, or XIV.

 Weekend Review of Volatility Indexes and ETPs – 6/18/2017 at vixtrade.com

With a couple of small exceptions the volatility indexes quoted by CBOE were mostly lower last week.  I see no pattern in the mix of indexes that rose so it’s tough to attribute the green changes below to anything other than market randomness..

 Weekend Review of Volatility Indexes and ETPs – 6/18/2017 at vixtrade.com

I guess the trade below is a version of Monday morning quarterbacking (post-expiration perfect trade fitting?).  The only life VIX really experienced last week came on Monday, which also pushed VXX higher for the day.  As the end of the day approached a trader came in and purchased 100 VXX Jun 16 13.50 Puts for 0.40 combined with selling the same number of VXX Jun 16 13.00 Puts for 0.14 and a net cost of 0.26.  I admitted as I started discussing this trade that I was benefiting from hindsight and we can see this trade was perfect based on where VXX closed Friday.

 Weekend Review of Volatility Indexes and ETPs – 6/18/2017 at vixtrade.com

 Weekend Review of Volatility Indexes and ETPs – 6/18/2017 at vixtrade.com >

Weekend Review of VIX Futures and Options – 6/11/2017

VIX was higher by about 10% last week, but that did not have much of an impact on the rest of the term structure.  The futures were mixed which can be attributed to just how steep the VIX curve was going into the week.

 Weekend Review of VIX Futures and Options – 6/11/2017 at vixtrade.com

Before things turned to the upside on Friday we experienced the lowest level for VIX since 1993.  The table below ranks the lowest inter-day lows for VIX since 1990.  Note Friday ranks 6th and 4 of the 10 on the list occurred this year.

A couple of bullish VIX trades hit the pit right around the market close on Friday.  First, there was a seller of a June put spread that is looking for VIX to achieve 11.00 and remain above that level (if held to expiration).  Specifically there was a seller of 1000 of the VIX Jun 21st 11 Puts at 0.35 who purchased the VIX Jun 21st 10 Puts for 0.08 and a net credit of 0.27.  The risk to this trade involved VIX back down in the single digits which would result in a loss of 0.73.

 Weekend Review of VIX Futures and Options – 6/11/2017 at vixtrade.com

The other trade is probably more dynamic and was initiated at no cost.  A trader purchased 3000 VIX Jun 21st 14 Calls at 0.36 and then sold 4500 of the VIX Jun 21st 17 Calls for 0.18.  Two results show up on the diagram below.  The curved line is with 3 trading days to expiration and the other shows expiration, which is only 7 trading days and an overnight away.

 Weekend Review of VIX Futures and Options – 6/11/2017 at vixtrade.com

Note that a move for VIX or more specifically the Jun VIX futures to the 13 to 19 range results in a profit for this trade.  Since VIX tends to spike and regress pretty quickly any move to this range would prompt many traders to try to take partial of full profits.

 Weekend Review of VIX Futures and Options – 6/11/2017 at vixtrade.com >

Weekend Review of Volatility Indexes and ETPs – 6/11/2017

That little bump in VXST that shows up on the far left side of the diagram below can be attributed to Friday afternoon activity.  VXST rose 0.75 Friday while VIX was up 0.54.  Shorter dated SPX option pricing is used to calculate VXST than VIX.  It may be the weakness Friday afternoon in large cap tech stocks may have traders worrying about the direction of the stock market over the short term.

 Weekend Review of Volatility Indexes and ETPs – 6/11/2017 at vixtrade.com

Several things pop out at me on the table below.  VMAX had a nice week rising 2% and outpacing the other long unleveraged VIX related ETPs.  SKEW is fairly high, which with VIX rebounding a bit is a more worrisome reading than when VIX was under 10.00 or working its way down there.  VVIX rising with higher VIX is an indication that demand for VIX calls seems to be increasing.  Finally, a different theme, but it is interesting to see the weakness in EVIX, which is based on VSTOXX futures, that accompanies the UK election coming to a conclusion at the end of last week.

 Weekend Review of Volatility Indexes and ETPs – 6/11/2017 at vixtrade.com

On Friday the Nasdaq-100 (NDX) was down 1.8%, the S&P 500 was down only 0.08%, and the Russell 2000 (RUT) gained 0.43%.  This is a heck of a divergence and this shows up some in the table below with VXN coming in as the leading gainer among volatility indexes quoted by CBOE.  In fact Friday was the 9th biggest single day gain for VXN on record.  Note the volatility indexes that represent option activity in two big NDX stocks are high up on the list as well.    At the bottom of the list is BPVIX followed closely by the other currency related volatility indexes.

 Weekend Review of Volatility Indexes and ETPs – 6/11/2017 at vixtrade.com

VXX and UVXY were both up slightly last week.  However, 2017 has been anything but kind to anyone long volatility.  On the flip side SVXY up over 70% on the year.

 Weekend Review of Volatility Indexes and ETPs – 6/11/2017 at vixtrade.com

Finally, I came across a pretty interesting SVXY trade from late Friday.  With SVXY at 154.26 someone sold 100 SVXY Jun 16th 131 Puts at 1.15.  That’s it, a pure sell of put options.  Normally I shy away from discussing such trades, but SVXY is a different animal.  When you sell puts you get the obligation to buy the underlying.  The long term trend for short volatility funds is up, with some bumps in the road.  Taking on the obligation to buy SVXY this coming Friday at 131.00 a share means purchasing the fund if it drops 15% or more next week.  It is very possible for SVXY to lose 15% in a week or even much more.  However, SVXY does make sense as a buy on a drip and this trade accomplishes just that with the result of not buying being a profit equal to the 1.15 credit taken in Friday afternoon.

 Weekend Review of Volatility Indexes and ETPs – 6/11/2017 at vixtrade.com >