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 >

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 >

On Election Eve, Volatility Indexes for Stocks, Gold, Currencies & Volatility Fall By More than 8% (after Record 9-Day Up-Streak)

NOV. 7 – Last week I heard about quite a bit of new interest in portfolio protection strategies, and on November 4 the CBOE Volatility Index® (VIX®) rose on a ninth consecutive day (a new all-time record for the VIX Index over its price history dating back to January 1990).

However, today (the date before the U.S. national elections), the S&P 500® Index rose 2.2%, and the percentage changes for some key volatility indexes were as follows:

  • -16.9%             VIX                  CBOE Volatility Index
  • -14.5%             EUVIX             CBOE/CME FX Euro Volatility Index
  • -12.3%         VXEFA            CBOE EFA ETF Volatility Index
  • -10.3%             VVIX                CBOE VIX of VIX Index
  • -8.4%         GVZ                CBOE Gold ETF Volatility Index
  • 2.4%          TYVIX             CBOE/CBOT 10-year U.S. Treasury Note Volatility Index

Visit www.cboe.com/volatility for values and prices changes for more than two dozen more volatility indexes.

 PRICE CHARTS SINCE OCTOBER 24

Below are price charts showing daily closing values for four volatility indexes over the past eleven trading days. It appears that FBI announcements (on Friday, October 28, and on Sunday, November 6, regarding the status of their investigations of Hillary Clinton’s emails) had an impact on key volatility indexes.

1 VIX VVIX Nov 7 On Election Eve, Volatility Indexes for Stocks, Gold, Currencies & Volatility Fall By More than 8% (after Record 9 Day Up Streak) at vixtrade.com

2 VXEFA GVZ On Election Eve, Volatility Indexes for Stocks, Gold, Currencies & Volatility Fall By More than 8% (after Record 9 Day Up Streak) at vixtrade.com

VOLATILITY SKEW FOR VIX OPTIONS

The next chart below show the Livevol estimates for the volatility skew for VIX options at the close today (when the VIX Index was priced at 18.71. Note that the implied volatility estimate for the VIX 20 calls expiring this Wednesday was 330 (much higher than the estimates for implied volatility for VIX calls that expire on the following Wednesdays).

1 VIX vola skew on Nov7 On Election Eve, Volatility Indexes for Stocks, Gold, Currencies & Volatility Fall By More than 8% (after Record 9 Day Up Streak) at vixtrade.com

MORE INFORMATION

 To learn more about managing your portfolio with index options, please visit the Strategies and Education tabs at the CBOE website.

Qualified institutional investors also are welcome to register at www.cboermc.com for an upcoming Risk Management Conference hosted by CBOE –

  • RMC Asia 2016: Nov 30 – Dec 1, 2016 at the Conrad Hong Kong Admiralty, Hong Kong, and
  • RMC US 2017: Wednesday – Friday, March 8 – 10, 2017 at the St. Regis Monarch Beach, Dana Point, California.

 On Election Eve, Volatility Indexes for Stocks, Gold, Currencies & Volatility Fall By More than 8% (after Record 9 Day Up Streak) at vixtrade.com >

VVIX Index Spikes 21% on News of Investigation – By Matt Moran

OCT. 28 – On Friday afternoon a news story at wsj.com noted that –

“Worries about a surprise election outcome resurfaced anew in financial markets on Friday afternoon after the Federal Bureau of Investigation uncovered new evidence in its investigation of Democratic presidential candidate Hillary Clinton‘s email server. … The news sent ripples through stocks, currencies and commodities in afternoon trading. The S&P 500 slumped to the day’s lows in recent trading and the CBOE Volatility Index, the market’s “fear gauge,” shot to its highest level in six weeks. …”

 FIVE CHARTS SHOW PRICE MOVES ON FRIDAY AFTERNOON

The CBOE VIX of VIX Index (VVIX) is an indicator of the expected volatility of the 30-day forward price of the VIX. www.cboe.com/VVIX. The prices of VIX options are used in the VVIX calculation. On Friday afternoon the VVIX Index had a quick rise of more than 21% to an intraday high of 106.66.

 A VVIX Oct 28 VVIX Index Spikes 21% on News of Investigation – By Matt Moran at vixtrade.com

 

The popular CBOE Volatility Index® (VIX®) also spiked Friday afternoon. The VIX Index ranged from a low of 14.65 to a high of 17.35 during the trading day.

B VIX on Oct. 28 VVIX Index Spikes 21% on News of Investigation – By Matt Moran at vixtrade.com

While many folks follow the VIX Index, volatility traders often focus more on tradeable instruments such as the VIX futures. The VIX November futures (expiring on Nov. 16) also spiked mid-day Friday, and during the Friday trading session (which runs more than 23 hours) the VIX November futures prices ranged from a low of 15.74 to a high of 17.08.

C VIX Nov Futures VVIX Index Spikes 21% on News of Investigation – By Matt Moran at vixtrade.com

The S&P 500® Index (SPX) had a drop of about 20 points mid-day Friday, and for the entire day the index was down 6.63 points.

D SPX on Oct 28 VVIX Index Spikes 21% on News of Investigation – By Matt Moran at vixtrade.com

A Bloomberg report noted that “American equities erased gains and Mexico’s peso, which is seen as a proxy for market perception on the U.S. vote, declined against most major currencies. …”

E Peso VVIX Index Spikes 21% on News of Investigation – By Matt Moran at vixtrade.com

MORE INFORMATION

Visit the Product Specific Strategies section of the CBOE website to learn more about how index options can help you manage your investment portfolio in times of market uncertainty.

 VVIX Index Spikes 21% on News of Investigation – By Matt Moran at vixtrade.com >

Morningstar Is Adding New “Option Writing” Category on April 29 – By Matt Moran

In my opinion, the launch of a new Option Writing category by Morningstar this week has tremendous potential to boost long-term interest in and acceptance of options-based strategies by portfolio managers, financial advisers, and consultants.

On April 29, 2016, Morningstar is adding a new Option Writing category to its U.S Retail Category system, and the Category Index is the CBOE S&P 500 BuyWrite Index (BXM).

BACKGROUND ON DEVELOPMENTS IN PAST YEARS

Over the past decade I have spoken to numerous representatives of different mutual funds that used options, and the top group of complaints I heard from these reps involved the Morningstar categories – these reps told me that the Morningstar categories were very important and influential, but the categories applied to their options-based fund (such as “Long-Short” or “Large Blend”) could be updated to be more accurately descriptive. Some of these representatives said that (1) they individually met with Morningstar to discuss the category applied to their fund, (2) they were interested in a the possibility of new Options category, and (3) they asked if CBOE could discuss the category topic with Morningstar. In 2014 I had a two-hour meeting with key Morningstar reps in which (1) I gave them an overview of performance of options-based benchmark indexes (such as the BXM Index) and some options-based mutual funds, (2) Morningstar reps told me that potential new Morningstar categories have several requirements, including the fact that there should be enough constituents to form the basis for reasonable peer group comparisons (e.g., a dozen funds generally would not be enough to generate a new category), and (3) I told Morningstar reps that in the future I would provide more information on many dozens of options-based funds. In early 2015 I was pleased to send to Morningstar a new study by Keith Black and Ed Szado that provided a list of 119 ’40 Act funds that used options (see more info on the study below).

KEY MORNINGSTAR CATEGORIES

Morningstar states that their categories “help investors identify the top-performing funds, assess potential risk, and build well-diversified portfolios.” In the U.S., Morningstar supports 122 categories, which map into nine category groups (U.S. equity, sector equity, allocation, international equity, alternative, commodities, taxable bond, municipal bond, and money market). The category group indexes and category indexes listed with each category are used in Morningstar’s tools and reports to show performance relative to a benchmark.

Two of the key Alternative categories that could be of interest to people who invest in options or volatility products are:

  Option Writing (introduced on April 29, 2016)

Option writing funds aim to generate a significant portion of their returns from the collection of premiums on options contracts sold. This category includes covered call strategies, put writing strategies, as well as options strategies that target returns primarily from contract premiums. In addition, option writing funds may seek to generate a portion of their returns, either indirectly or directly, from the volatility risk premium associated with options trading strategies.

  • Category Group Index: S&P 500 TR USD
  • Category Index: CBOE S&P 500 BuyWrite BXM
  • Morningstar Index: Morningstar US Market TR USD

  Volatility (introduced on April 30, 2011)     

Volatility strategies trade volatility as an asset class. Directional volatility strategies aim to profit from the trend in the implied volatility embedded in derivatives referencing other asset classes. Volatility arbitrage seeks to profit from the implied volatility discrepancies between related securities.

  • Category Group Index: S&P 500 VIX Short Term Futures TR USD
  • Category Index: S&P 500 VIX Short Term Futures TR USD
  • Morningstar Index: Morningstar Cash TR USD

LESS VOLATILITY FOR BXM BENCHMARK INDEX

Morningstar’s Category Index for the new Option Writing category is the CBOE S&P 500 BuyWrite Index (BXM). While there are some people who still wonder if use of options usually adds to volatility, see the chart below and note that since mid-1986 the BXM Index had less volatility than the Citigroup Treasury Bond, S&P 500, Russell 2000, MSCI EAFE, and S&P GSCI (commodity) indexes.

1 BXM standard deviations Morningstar Is Adding New “Option Writing” Category on April 29 – By Matt Moran at vixtrade.com

LIST OF 119 FUNDS THAT USE OPTIONS IN 2015 STUDY

In 2015 Keith Black and Edward Szado published a paper “Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs.” You can visit www.cboe.com/funds to click on different versions of the paper — Slide Presentation (30-page PDF), Highlights (4-page PDF), and Paper (28-page PDF).

The 2015 paper found that the number of ’40 Act funds (including mutual funds, ETFs and closed-end funds (CEFs)) that used options grew from 10 in the year 2000 to 119 funds in 2014, and the paper provides a list of the names and ticker symbols for all 119 funds.

2 Number of funds Morningstar Is Adding New “Option Writing” Category on April 29 – By Matt Moran at vixtrade.com

In the 15-year line chart graph in the 2015 Black/Szado study, the black line (representing the returns of the U.S.-equity-focused options-based funds as a group) and the green line (representing the CBOE BXM Index) both tracked each other pretty closely.  At the end of the end of the 15-year period, both the options-based funds and the S&P 500 rose 86%, the BXM Index was up 82%, and the MSCI EAFE Index (in US$) rose 46%. All these returns are pre-tax, and past performance is not predictive of future returns.

3 Line chart growth Morningstar Is Adding New “Option Writing” Category on April 29 – By Matt Moran at vixtrade.com

In the bar chart by Black & Szado showing annualized standard deviations, the Options-Based Funds (represented by the black bar) had lower volatility than the S&P GSCI, MSCI EAFE. S&P 500, BXM, and Citigroup 30-Year Treasury Bond indexes.

4 Standard Devia Fds Morningstar Is Adding New “Option Writing” Category on April 29 – By Matt Moran at vixtrade.com

CONCLUSION

I am looking forward to learning more about which funds will be included in the new Option Writing category, and I will be interested to see if the most funds in the new Option Writing category have less volatility than most funds in Morningstar’s domestic and global stock categories.

To learn more about options benchmarks. options white papers and options-based funds, please visit www.cboe.com/benchmarks and www.cboe.com/funds.

 Morningstar Is Adding New “Option Writing” Category on April 29 – By Matt Moran at vixtrade.com http://vixtrade.com