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


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Apple to announce dividend increase

What s Happening Tech giant Apple AAPL has put together a 4 year streak of dividend increases which it will likely extend this week The stock currently pays a 0 57 quarterly dividend good for a 1 6 yield Shares have trended steadily higher over the last year and are up 22 6 year Apple to announce dividend increase at vixtrade.com

April: A Testing Month for VIX Traders

Shorting VIX® was among the top strategies in the past year.  XIV and SVXY both went up over 50% in Q1 2017 (~15% in March alone), almost doubled in the past six months, and returned ~180% over the past 12 months (see Exhibit 1).  However, the declining VIX spot level can only explain part of their performance.

Capture 1 420x104 April: A Testing Month for VIX Traders at vixtrade.com

Both XIV and SVXY consistently provide a short exposure to VIX futures, not the spot VIX index.  They are exchange-traded products that track the S&P 500® VIX Short Term Futures Inverse Daily Index, which, as its name suggests, seeks to track the inverse of the S&P 500 VIX Short Term Futures Index.

The S&P 500 VIX Short Term Futures Index takes long positions in the first- and second-month VIX futures contracts.  A proportion of the first-month contract (ticker UX1) is rolled to the second month (ticker UX2) every day to maintain a constant 30-day maturity.  As the second-month futures are usually more expensive than the first month (see Exhibit 2), this long VIX futures exposure usually incurs a loss from the roll (the “roll cost”), while the inverse of this exposure, as provided by the S&P 500 VIX Short Term Futures Inverse Daily Index, usually generates a profit from the roll (the “roll yield”).

Capture 2 420x216 April: A Testing Month for VIX Traders at vixtrade.com

The roll cost of the S&P 500 VIX Short Term Futures Index may seem small on daily basis, but in aggregate, it causes the index to go down over a long-term horizon.  In the 12-month period (253 trading days), positive roll cost occurred on 247 days (97.63%).  This is the main driver behind the enormous growth of inverse VIX futures products.

However, April 2017 will be an interesting month for VIX traders for a number of reasons.

First of all, the spread between the first-month and second-month VIX futures contracts has narrowed (see Exhibits 2 and 3).  In addition to the reduction in roll yield of the short VIX futures exposure, the flattening of the VIX term structure usually indicates anxiety being built up in the market.  In a distressed market, the VIX term structure may even -become inverted, when the first-month futures  become more expensive than those of the second month.

Capture 3 420x145 April: A Testing Month for VIX Traders at vixtrade.com

Secondly, the spread between the VIX spot and the 30-day realized volatility of the S&P 500 has tightened.  As the benchmark of implied volatility, VIX is expected to be higher than the 30-day realized volatility of SPX.  A tightened spread often indicates that the market is complacent and a VIX spike is on the way.  When VIX spikes, the inverse VIX futures products usually incur losses.

Capture 4 420x155 April: A Testing Month for VIX Traders at vixtrade.com

 

Finally, risk coming from outside of the U.S., including the upcoming French election, should not be overlooked.  As illustrated in Exhibit 5, the term structure of VSTOXX, a VIX-like index that measures the 30-day implied volatility of the Euro Stoxx 50 index, became inverted over the month of March 2017.  As the European market is getting ready for the April 23, 2017 election, market participants in the states might need to fasten their seatbelts.

Capture 5 420x158 April: A Testing Month for VIX Traders at vixtrade.com

The U.S. equity market was resilient after Brexit and the U.S. presidential election, but how it will respond to the results of the French election is yet to be revealed.  April could be an interesting month for all VIX investors, on the long or short side of the trade.

 April: A Testing Month for VIX Traders at vixtrade.com >

Weekend Review – VIX Futures and Options – 4/2/2017

The Friday to Friday change in the VIX term structure was as orderly as I’ve seen it in some time.

 Weekend Review – VIX Futures and Options – 4/2/2017 at vixtrade.com

VIX has had a lower average daily close during a quarter only once, the fourth quarter of 2006.  However, the low to high range for VIX has never been tighter than what we experienced in the first quarter of 2017 with the range of 2.54.  On average the range of closing VIX prices is about 10.60 so the VIX market may be a bit wound up to the point where a big move to the upside is coming sooner rather than later.

 Weekend Review – VIX Futures and Options – 4/2/2017 at vixtrade.com

Another factor that is looming over the volatility space is the pending election process beginning later this month in France.  The curve below shows spot VSTOXX and associated futures pricing. Note the shape is not normal with the April contract as an outlier.  VSTOXX and VIX usually move in line with each other, but the futures pricing of each market indicates a divergence is on the horizon.  Either VSTOXX pulls VIX higher or VIX is the leader and VSTOXX moves lower over the next few weeks.

 Weekend Review – VIX Futures and Options – 4/2/2017 at vixtrade.com

It may seem like a long time ago, but VIX came close to a 15 handle early Monday before backing off and returning to normal levels for 2017.  There were contrasting trades early Monday, one fading the move and one looking for some follow through to higher levels for VIX.  Let’s look at the fade trade first.

With VIX around 14.80 and the April futures around 14.60 (yes backwardation!) there were a seller of the VIX Apr 14 Calls at 1.54 who purchased the Apr 21 Calls for 0.46 and a net credit of 1.08.  The payoff at April expiration appears below.

 Weekend Review – VIX Futures and Options – 4/2/2017 at vixtrade.com

The bullish VIX trade occurred when spot VIX and the April contracts were at similar levels.  This trader bought the VIX Apr 15 Calls at 1.29 and sold the Apr 20 Calls for 0.52 and a net cost of 0.77.  That payout appears below.

 Weekend Review – VIX Futures and Options – 4/2/2017 at vixtrade.com

So far so good for the fade trade, as spot VIX and the April contract finished the week much lower than where it started, however there’s still time to go for the bullish trade.

 Weekend Review – VIX Futures and Options – 4/2/2017 at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 4/2/2017

The shift lower in the VXST – VIX – VXV – VXMT curve was 75% parallel and 25% dramatic.  The dramatic move was at the shorter end of the curve where VXST dropped 28% moving from a premium to discount relative to VIX.

 Weekend Review – Volatility Indexes and ETPs – 4/2/2017 at vixtrade.com

As noted volatility was lower across the board.  Of interest below, VVIX finished below 80 and TYVIX remained at very low levels. For the volatility bulls the only glimmer of hope is SKEW around 140, but it is pretty difficult to get excited about any level of SKEW when VIX is in the tweens.

 Weekend Review – Volatility Indexes and ETPs – 4/2/2017 at vixtrade.com

SVXY knocked the cover off the ball rising over 55% for the first quarter.  Not on the chart, but worth noting is the REX VolMAXX Short VIX Weekly Futures Strategy ETF (VMIN) which focuses on a shorter time frame than SVXY and XIV, was up 61.4% in the first quarter.

 Weekend Review – Volatility Indexes and ETPs – 4/2/2017 at vixtrade.com

Since the quarter has come to an end the focus will soon turn to first quarter earnings.  Higher option implied volatility is often a bi-product of a pending earning release.  Although the announcements are a few weeks out, AMZN and AAPL option volatility rose last week.  The two Euro Currency related volatility indexes were among the gainers.  VXEFA which is an indication of risk associated with Euro Zone stability.  VXEFA is based on EFA ETF options which is a fund that gives investors exposure to developed markets excluding North America (US and Canada).  As a result, there is a heavy weighting toward European stocks in this index.

 Weekend Review – Volatility Indexes and ETPs – 4/2/2017 at vixtrade.com

Finally, the first size VXX trade I’ve seen that appears to be focusing on the French election process which should come to an end on May 7th.  On Friday, with VXX at 15.53 a trader sold the VXX May 5th14.00 Puts at 0.33 and the purchased the VXX May 12th 13.50 Puts for 0.33.  Selling puts that expire before the final election and purchasing puts that expire just after just might be a bet on a post French election volatility crush.  The payoff below shows the outcome upon expiration of the May 5th position.

 Weekend Review – Volatility Indexes and ETPs – 4/2/2017 at vixtrade.com

This trade is pretty interesting as it is offers short volatility exposure, but does not realize any losses if we get an unexpected upside volatility event between now and May 5th.  The worst-case scenario of a complete collapse in volatility which overshoots the put strikes and results in some sort of loss, which is capped at 0.50.  I always say traders will continue to find fascinating ways to utilize the different tools at their disposal and here is another example.

 Weekend Review – Volatility Indexes and ETPs – 4/2/2017 at vixtrade.com >