At Holdings Channel we have reviewed the latest batch of the 123 most recent 13F filings for the 06 30 2017 reporting period and noticed that Netflix Inc Symbol NFLX was held by 22 of these funds When hedge fund managers appear to be thinking alike we find it is a good idea to take
Options can not only be used to speculate on a stock s direction but also as portfolio insurance A shareholder who is nervous about a pullback might buy a protective put or married put on a stock they own to use as an insurance policy in a way Likewise traders can also hedge
An August 10 press release by CBOE Holdings stated that —
“ … trading volume in options and futures on the CBOE Volatility Index® (VIX®) each reached new all-time highs on Thursday, August 10. In VIX options at CBOE, a reported 2,562,477 contracts traded on Thursday, surpassing the previous single-day record of 2,382,752 contracts on February 3, 2014. Year-to-date through the end of July, average daily volume in VIX options was 687,181 contracts, 11 percent ahead of the same period a year ago. In VIX futures at CBOE Futures Exchange (CFE), a reported 939,297 contracts traded on Thursday, surpassing the previous single-day record of 791,788 contracts on October 15, 2014. Of the 10 busiest trading days of all-time for VIX futures, four have occurred in 2017. Year-to-date through the end of July, average daily volume in VIX futures was 283,342 contracts, 20 percent ahead of the same period a year ago.”
A story posted at nytimes.com noted that —
“… After a record-breaking run of buoyant market behavior, investors appeared unnerved on Thursday by a series of provocative remarks by President Trump and increasing tensions with North Korea. …”
BIGGEST ONE-DAY MOVES FOR VIX INDEX
On August 10 the VIX Index jumped 44.4% to close at 16.04. The move was the ninth-biggest one-day move (in percentage terms) for the VIX Index. Note that in the table below with ten dates that the S&P 500 Index fell farther than the CBOE S&P 500 PutWrite Index (PUT) on all ten dates, and that option-writing strategies often are designed to provide a cushion in the event of a downward move in the stock index.
OTHER VOLATILITY INDEXES ALSO ROSE ON AUGUST 10
As shown in the next table, several other volatility indexes also rose on August 10, including the CBOE Equity VIX on Apple (VXAPL) (up 22.4%) and the CBOE VIX of VIX Index (VVIX) (up 26.7%).
RECORD OPEN INTEREST FOR VIX FUTURES
In addition to this month’s single-day volume records, the VIX futures set another new record with more than 675,000 open interest. VIX futures open interest has more than doubled since January 2016. I find it interesting to examine the table below with its comparison of VIX futures open interest and VIX Index values. While some observers assume that high volatility levels are associated with high volume and open interest figures, in the chart it appears that at times VIX futures open interest increased when the VIX Index was well below its long-term average levels.
VIX FUTURES PRICES
While there is much press coverage of movements of the spot VIX Index, the index is not investable. Investors who are interested in VIX-related investable instruments can explore the pricing of VIX futures. The table below shows that the last prices for VIX futures with 14 different expiration dates ranged from 14.75 to 17.45 at around 7:05 p.m. Chicago time on August 10.
To learn more about how VIX futures and VIX options can help in the management of portfolios, please visit www.cboe.com/VIX.
In trading on Tuesday shares of HSN Inc Symbol HSNI crossed below their 200 day moving average of 36 08 changing hands as low as 35 00 per share HSN Inc shares are currently trading down about 9 2 on the day The chart below shows the one year performance of HSNI shares versus its 200
What s Happening Entertainment mogul Walt Disney DIS reports its fiscal third quarter results on August 8 The company reports after the market close with the consensus calling for 1 53 per share During the same period last year the company earned 1 62 per share and the stock
Investors in Honeywell International Inc Symbol HON saw new options begin trading today for the October 20th expiration One of the key inputs that goes into the price an option buyer is willing to pay is the time value so with 79 days until expiration the newly trading contracts represent
On a week over week basis the S&P 500 was down fractionally. One would not assume such a small move from SPX when looking at the VXST – VIX – VXV – VXMT curve below. VXST and VIX made nice moves to the upside while the longer end of the curve moved up a bit less resulting in a slight flattening of the curve.
The long funds that focus on the first and second month futures were up slightly while the short funds were down slightly. SKEW and VVIX both moved up nicely last week which should be encouraging for volatility bulls or equity market bears.
The three funds that represent long (VXX), daily double long (UVXY), and daily short (SVXY) have had very divergent performance this year and last week didn’t really change much on the year to day performance below. SVXY did manage to top up 100% early in the week before falling off a bit.
The majority of volatility indexes quoted by CBOE were higher last week. If it weren’t for earnings from GOOG, IBM, and AMZN which resulted in a volatility crush in options on those stocks there would probably be more green on the table below.
Early Thursday, before volatility finally started to get moving someone came in and bought a large number of out of the money VXX calls with an outlook that appears to hope for an overdue volatility spike between now and September 15th. With VXX at 11.00 they purchased just over 2500 of the VXX Sep 15th 15 Calls for 0.34. Note about a 40% move is needed for this trade to break-even at expiration, for most markets that’s unheard of, but not in the volatility world.
This past week is one of those weeks where those new to VIX futures get a lesson in price behavior and the lack of fair value that exists between the futures and the spot index. VIX rose almost 10% on the week, the August contract was unchanged and the rest of the curve actually moved lower. The curve had been steep and the result was futures not budging too much when VIX got moving to the upside.
As we enter the last five months of the year I would like to highlight where we are compared to VIX history going back to 1990. Below is a chart showing the high, low and average close by year for the full history of VIX.
We have been fixated on putting in a new all-time closing low (9.31 in 1993), which has not happened. However, the average closing price for VIX in 2017 is 11.39 which is a full point below the average closing low for VIX that occurred in 1995. In order to avoid 2017 having the lowest VIX average close on record we need to average about 13.74 over the remaining 107 trading days this year. That would involve a pretty sustained volatility event considering how quickly VIX drops after any sort of strength these days. I’m not saying it is going to happen, I’m just pointing out what has to happen.
Finally, with an hour to go in the trading day on Thursday one trader came in who does not think VIX is going anywhere above 13.00 over the next few weeks. With VIX at 10.80 and the September contract at 12.80 there was a seller of the VIX Sep 13.00 Calls for 1.42 who then purchased the VIX Sep 20 Calls for 0.56 taking in a net credit of 0.86. The payoff at September 20thAM settlement shows up below.
Of course, the goal is for standard September VIX contracts to settle below 13.00, but anywhere under 13.86 would result in at least a partial profit. Of the 144 trading days, we’ve experienced in 2017 only 11 have had closed over 13.86, so at least based on recent history this may be a smart trade.
What s Happening Personal and property insurer Aetna AET is expected to report its second quarter numbers on August 3 The company will release its numbers before the market open with the consensus calling for earnings of 2 34 per share up from 2 21 during the same period last year
The 160 Dow Jones Industrial Average DJIA 160 touched a new record high rallying on the wings of a strong post earnings performance from Boeing stock Stocks also stayed relatively steady after the Fed s unsurprising decision to leave interest rates unchanged though the central
The 160 Dow Jones Industrial Average DJIA 160 finished lower today marking its 160 third straight loss The S amp P 500 Index SPX joined the Dow in the red as traders exercised caution ahead of a Fed meeting later this week However the Nasdaq Composite COMP 160
In recent weeks several news articles have noted that the CBOE Volatility Index® (VIX®) dipped below 10, and have asked if there is an unusual amount of complacency in the markets. The VIX Index closed below 10 on seven straight trading days (an all-time record) from July 13 to July 21. Recent headlines stated (1) “Too calm? Wall Street volatility collapses to lowest since 1993” (by CNBC), and (2) “Dip in volatility stirs warnings about too much complacency” (by Pensions & Investments).
IS THERE TOO MUCH COMPLACENCY IN THE MARKETS?
I believe that an argument could be made that the markets still are concerned about downside risk, and are not completely complacent in 2017, particularly if one looks at the statistics in three charts below: (1) the CBOE SKEW Index already has closed above 145 on 10 days in 2017 (more than any other calendar year); (2) a recent SPX volatility skew chart showed that the implied volatility estimates for many of the out-of-the-money put options ranged from 11 to 27, and (3) a recent VIX futures term structure chart showed VIX futures prices (with expirations at future dates) ranged from 10.35 to 16.
CBOE SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence. The value of SKEW increases with the tail risk of S&P 500 returns. If there were no tail risk expectations, SKEW would be equal to 100.
SPX VOLATILITY SKEW CHART – SHOWS DEMAND FOR DOWNSIDE PROTECTION
The volatility skew chart below shows the implied volatility estimates for SPX options at the close on Friday, July 21. On that date the closing values were 2472.54 for the SPX Index, 9.36 for the CBOE Volatility Index® (VIX®) (the second-lowest daily close for the VIX Index), and 134.53 for the CBOE SKEW Index (SKEW). The long-term average daily closing values since January 1990 are 19.5 for the VIX Index and 118.7 for the SKEW Index.
The SPX volatility skew chart below shows:
- Expirations on 26 upcoming dates in 2017 (including Mondays, Wednesdays, and Fridays and end-of-months) are available for SPX options; and
- The implied volatility estimates for at-the-money SPX options ranged from around 5 to 12, and the implied volatility estimates for many of the out-of-the-money put options (with strike prices from 2230 to 2404, and that can be used for downside portfolio protection) were often much higher, with a range from around 11 to 27. With the SKEW Index at 134.53, one can expect generally higher implied volatilities for out-of-the-money SPX put options, when compared with at-the-money SPX options.
VIX FUTURES TERM STRUCTURE – RANGE FROM 10.35 TO 16
The VIX futures term structure chart is upward sloping and shows that the VIX futures prices ranged from 10.35 (for the July 26 expiration) to 16 (for the VIX futures expiring on February 14, 2018).
In order to gain a better sense of the amount of overall fear or complacency in the markets, analysts and investors can examine and compare many metrics, including the VIX Index, SKEW Index, volatility skew charts, and VIX futures term structure.