Large Buyer of VIX Calls Today at CBOE

Another big bullish VIX trade came into the pit today, with VIX just over 10.00 and the October futures at 12.20, a buyer of about 100,000 VIX Oct 17 Calls came into the market paying 0.45 for the whole lot.  The trade got divided up around the pit in several pieces, which shows up in the time and sales from LiveVol below.

 Large Buyer of VIX Calls Today at CBOE at vixtrade.com

There’s just under 3 weeks October 18th when these options settle on the market open so the buyer is either speculating on a volatility spike, or guarding against one using long VIX exposure as a hedge.   The comment I heard in the VIX pit was, “This seems a little unusual”, probably as most long volatility plays come in the form of a spread to lower the cost of the trade.   Either way, it’ll be interesting to keep an eye on the 17 line for the next few weeks.

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New Daily Volume Record of 2.61 Million for VIX Options, as Investors Engage in Hedging and in Short VIX Futures

On September 25th a new daily volume record of 2.61 million contracts was set for options on the CBOE Volatility Index® (VIX®), as the VIX Index rose 6.5% to close at 10.21 that day.

TOP TEN VOLUME DAYS FOR VIX OPTIONS

Four of the top ten days for VIX options volume occurred in 2017.

1 Top 10 VIX op volume New Daily Volume Record of 2.61 Million for VIX Options, as Investors Engage in Hedging and in Short VIX Futures at vixtrade.com

NEWS COVERAGE OF TRADING ACTIVITY IN VIX OPTIONS AND VIX FUTURES

Recent news coverage has highlighted investor use of both VIX options and VIX futures.

A September 25 news story in Reuters entitled “VIX options volume jumps as trader hedges against stock market sell-off” noted that –

“ …More than 2 million contracts changed hands in a spread trade, the largest ever in VIX options, according to Trade Alert data. A trader bought about 261,000 Oct. 12 puts and sold the same number of Oct. 15 calls and twice as many of the Oct. 25 calls. At the same time, the trader sold 261,000 Dec. 12 puts and twice as many Dec. 25 calls, to buy 261,000 Dec. 15 calls. … The net effect of the trade was to position the trader for a lift in the VIX to the 15-20 level by December. …”

A September 25 Moneybeat blog at wsj.com entitled “Back in Vogue: Betting on the VIX to Fall” noted that —

“ …Hedge funds and other speculative investors ramped up bearish bets on the CBOE Volatility Index, or VIX, to the most in over a month, according to data from the Commodity Futures Trading Commission. Net bearish bets on the VIX outnumbered bullish bets by the group by 96,601 contracts for the week ending Sept. 19. Those investors had 70% more short bets than long bets on the index for the week ending Sept. 19. … “

PRICE CHART – VVIX AND VIX INDEXES

For purposes of analyzing trading activity in VIX options, the CBOE VIX of VIX Index (ticker VVIX) can serve as a useful metric because it is a measure of the market’s expectations and is an indicator of the expected volatility of the 30-day forward price of the VIX.

Over the past decade, the average daily closing values were 87.7 for the VVIX Index and 20.4 for the VIX Index. However, more recently, (as shown in the chart below), from August 25 through September 25, the average daily closing values were 11.3 for the VIX Index and 96.8 for the VVIX Index.

2 VVIX VIX Sep 25 New Daily Volume Record of 2.61 Million for VIX Options, as Investors Engage in Hedging and in Short VIX Futures at vixtrade.com

 MORE INFORMATION

To access price charts and price history for the VIX and VVIX indexes, and to learn more about use of VIX futures and options for your portfolio, please visit www.cboe.com/VIX and www.cboe.com/volatility.

 New Daily Volume Record of 2.61 Million for VIX Options, as Investors Engage in Hedging and in Short VIX Futures at vixtrade.com >

Options on Ten Select Sector Indices To Launch

On September 12 CBOE Holdings, Inc. announced plans to expand its suite of product offerings tied to S&P Dow Jones Indices with the planned launch of options on the 10 S&P Select Sector Indices that comprise the S&P 500 Index, a key benchmark of the U.S. equities market.

  • Options will be available on 10 sectors that comprise the S&P 500, pending regulatory approval.
  • The new options are expected to hold particular market appeal for European investors interested in targeted exposure within key U.S. equity benchmarks.
  • Further expands CBOE’s successful suite of products tied to S&P Dow Jones Indices, with trading and settlement features similar to CBOE’s S&P 500 options (SPX).

CHART 1 – WEIGHTINGS FOR S&P SELECT SECTOR INDEXES

S1 Sectors weights pie chart Options on Ten Select Sector Indices To Launch at vixtrade.com 

CBOE Holdings President and Chief Operating Officer Chris Concannon delivered remarks on sectors to attendees of the 6th annual CBOE Risk Management Conference (RMC) Europe, currently taking place near London. “We are excited that we will be able to provide exposure to these key U.S. sector indices for European customers who have been keen to incorporate U.S. sector investing strategies into their portfolios, but have not had access to an efficient trading vehicle to realize this strategy,” Mr. Concannon said.

CHART 2 – TICKERS, NOTIONAL VALUE, HISTORIC VOLATILITY

The table provides index ticker symbol, options trading symbol, approximate notional value covered by index options with a $100 multiplier on September 1, 2017 (if they were available on that date), and the average 30-trading day historic volatility over 5 years for each of the 10 indexes. In addition, Chart 5 below shows how historic volatility had changed since 1998 for the Tech and Energy sectors.

S2 Tickers Notional Hist Vola Options on Ten Select Sector Indices To Launch at vixtrade.com

CHART 3 – PRICES SINCE MID-1998 FOR FIVE SELECT SECTOR INDEXES

 Nine of the ten S&P Select Sector indices have a price of 250 on June 30, 1998, while the S&P Real Estate Select Sector Index (IXRE, SIXRE) has a shorter price history and has a price of 100 on December 30, 2011. To facilitate easier comparison of the nine indexes with price history back to 1998, I created Chart 3 and Chart 4 below. In Chart 3, the (Consumer Discretionary) IXY Index rose 261% while the (Financial) IXM Index rose only 21%.

 S3 Sectors Five Lines 1 Options on Ten Select Sector Indices To Launch at vixtrade.com

 CHART 4 – PRICES SINCE MID-1998 FOR FIVE SELECT SECTOR INDEXES

In Chart 4 the IXV (Health Care) Index rose 226%, while the IXU (Utilities) Index rose 121%.

S4 Sectors Four Lines Options on Ten Select Sector Indices To Launch at vixtrade.com

CHART 5 – HISTORIC VOLATILITY FOR ENERGY AND TECH SECTORS SINCE 1998

The table in Chart 2 above presents the historic volatilities for all ten S&P Select Sector indices.

Chart 5 below shows the historic volatility since 1998 for the IXE (Energy) and IXT (Technology) indices. The volatility for IXT generally was higher in 2000 to 2002, while the volatility for IXE often was higher in recent years.

S5 Hist vola 2 indexes Options on Ten Select Sector Indices To Launch at vixtrade.com

CHART 6 – CORRELATIONS AMONG 12 INDICES OVER FIVE YEARS

Chart 6 below shows that the S&P Consumer Discretionary Select Sector Index (IXY, SIXY) and the S&P Industrials Select Sector Index (IXI, SIXI) both had high correlations of 0.90 versus the S&P 500 Index, while lower correlations versus the S&P 500 Index were shown for both the S&P Real Estate Select Sector Index (IXRE, SIXRE) (0.46) and for the S&P Utilities Select Sector Index (IXU, SIXU) (0.21).

S6 Sectors Correlations Table Options on Ten Select Sector Indices To Launch at vixtrade.com

EUROPEAN INVESTORS AND UCITS

CBOE Select Sector Index options are designed to potentially be problem-solvers for European asset managers who want exposure to these U.S. index sectors, but cannot hold physical delivery exchange-traded product (ETP) options in their funds because of EU regulations around UCITS (Undertakings for the Collective Investment of Transferable Securities). The options on the Select Sector Indexes are designed to provide simple, straightforward market access to these key U.S. equity sectors for European investors.

MORE INFORMATION

For more information on the planned options on S&P Select Sector Indices, including links to more than 100 price charts, and a Fact Sheet with key options specifications, please visit www.cboe.com/Sectors.

 

 

 

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