Record Days for VIX Futures and Options Volume and Open Interest This Month

Despite the fact that the average daily closing value of the CBOE Volatility Index® (VIX®) is about 11.5 so far this year, VIX futures and options both had record days for volume and for open interest this month.

OPEN INTEREST RECORDS. VIX futures hit a new record for open interest with more than 673,000 contracts on August 7, and VIX options reached a new record for open interest with 14,783,380 contracts open on August 15. V1 Open Int VIX Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com

VOLUME RECORDS. August 10 was an all-time record volume day for both VIX futures (volume of 942,109 contacts) and for VIX options (volume of 2,538,121 contracts). V2 VIX fut opt volume Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com

 IS THE VIX INDEX “TOO LOW”? SPX HISTORIC VOLATILITY HAS BEEN EVEN LOWER; THERE STILL IS A VOLATILITY RISK PREMIUM

This year many financial professionals have raised the issue as to whether the VIX level appears to be “low” compared to the levels of worldwide financial insecurity.  At the 70th CFA Institute Annual Conference in May 2017, Richard Thaler of the University of Chicago opined that the “low” level of the VIX Index was one of the biggest financial mysteries of our time. As shown in the chart below, in 2017 the averages of the daily levels were 11.5 for the VIX Index and only 7.1 for the 30-trading-day historic volatility of the S&P 500 Index. Compared to the SPX historic volatility, the VIX Index has not necessarily been “low” this year.

V3 Vol Risk Prem 1 Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com

The fact that the VIX Index has been higher than SPX historic and realized volatility means that there has been a volatility risk premium. Some professional money managers who consistently sell index options like to see the volatility risk premium. Benchmark indexes that take advantage of the volatility risk premium (such as the CBOE S&P 500 PutWrite Index (PUT) and the CBOE S&P 500 30-Delta BuyWrite Index (BXMD)) generated relatively strong risk-adjusted returns over three decades, according to a research paper by Wilshire – Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016).

HIGH DEMAND FOR DISASTER PROTECTION – CBOE SKEW INDEX AND VOLATILITY SKEW CHART

Demand for disaster protection using index options has been high this year. Note in the volatility skew chart below that the implied volatility was highest for the out-of-the-money VIX calls (at 120% moneyness) and the out-of-the money SPX puts (at 80% moneyness)

V4 Volatility skew Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com

On August 18 I posted a blog on the CBOE SKEW Index that noted “The long-term daily average for the SKEW Index (since January 1990) is 118.8, but the daily average for the SKEW Index in 2017 (through August 17) is a much higher 134.5. …”

An August 24 story in the Financial Times noted that –

“Investors seek more protection against risk of a Wall St plunge A gauge that tracks hedging against a fall in US stocks is near a record level …       The CBOE SKEW index, which is meant to reflect concern about “tail risk”, or events roiling the markets, rose to 148.62 last week, its third highest reading … “

MORE INFORMATION ON VIX FUTURES AND OPTIONS

To learn more about ways in which the powerful VIX futures and options can be used for portfolio management, please visit www.cboe.com/VIX.

 

 

 Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com >

New Single-day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4%

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.

 2 Biggest Moves VIX Table Aug 10 New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com

 

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%).

2Views Table indexes Aug 10 New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com

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.

 4 VIX Fut Open interest and VIX index New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com

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.

VIX fut table New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com

MORE INFORMATION

To learn more about how VIX futures and VIX options can help in the management of portfolios, please visit www.cboe.com/VIX.

 

 

 New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com >

2017 is a Record-Breaking Year for Both SKEW-Over-145 and VIX-Under-10 Values

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.

1 Table chart VIX SKEW 2017 is a Record Breaking Year for Both SKEW Over 145 and VIX Under 10 Values at vixtrade.com

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.

2 Livevol vol skew SPX 2017 is a Record Breaking Year for Both SKEW Over 145 and VIX Under 10 Values at vixtrade.com

 

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).

 3 VIX Term Structure July 23 2017 is a Record Breaking Year for Both SKEW Over 145 and VIX Under 10 Values at vixtrade.com

 

CONCLUSION

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.

Links to more information on the SKEW Index, VIX futures and options, and more than 25 volatility indexes is at www.cboe.com/volatility.

 2017 is a Record Breaking Year for Both SKEW Over 145 and VIX Under 10 Values at vixtrade.com >

Weekend Review – VIX Options and Futures – 5/8/2016

VIX dropped last week, with a big part of the drop coming Friday afternoon. Note the futures followed suit, but specifically note that the front month May future gave up a little more ground than spot VIX. This is sort of common when we have an employment number. Also note how flat the curve is from July through November – the theory is that the Fed is out of play between the conventions and the election which may result in relative calm for the financial markets.

VIX Curve Table 1 Weekend Review – VIX Options and Futures – 5/8/2016 at vixtrade.com

Late Thursday a trade looking for some sort of move higher out of VIX and May VIX futures showed up at CBOE. There was a buyer of 500 of the VIX May 18th 23.00 Calls for 0.29 and sold 750 of the VIX May 18th 32.50 Calls for 0.07 each. Breaking this down to a smaller size they bought 2 of the 23.00 Calls for 0.29 and sold 3 32.50 Calls for 0.07 each – a net cost of 0.37 for each 2 by 3 spread.   As mentioned the trade occurred Thursday so the corresponding prices are Thursday’s as well. They didn’t get the volatility spike on Friday after payrolls, but they still have about a week and a half before time runs out on this trade.

VIX PO 1 Weekend Review – VIX Options and Futures – 5/8/2016 at vixtrade.com

 Weekend Review – VIX Options and Futures – 5/8/2016 at vixtrade.com >