Four Facts to Help Address the Issue – Is the VIX “Low” This Year?

In the past year a number of news reporters and others have asked if the CBOE Volatility Index® (VIX®) was at an unusually “low” level in light of all the worldwide geopolitical uncertainties. The average daily closing levels for the VIX Index are 19.4 since January 1990, but only 12.8 since June 2016.

  • 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. (Today it was announced that Professor Thaler won the Nobel Prize in economics for his research on how human traits affect individual decisions as well as financial markets.)
  • Early in 2017 the minutes of the Federal Reserve “expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook” for President Trump to deliver on pro-growth campaign policies.

Some observers have questioned whether there is too much complacency in the markets, and too little interest in protecting against downside risk in equities. Below are charts and four key facts to help address issues the current levels of VIX Index and perceived complacency in the markets.

SPX HISTORIC VOLATILITY HAS BEEN LOWER THAN THE VIX INDEX

Since June 1, 2016, the avg. daily closing levels were 12.6 for VIX Index, and 8.6 for 20-trading-day historic volatility of the S&P 500 Index (SPX). The S&P has not had huge moves over the past year, and with an average SPX historic volatility of 8.6, an average VIX level above 15 might be difficult to maintain.

1 VIX SPX H V 2 Four Facts to Help Address the Issue – Is the VIX “Low” This Year? at vixtrade.com

VIX FUTURES USUALLY PRICED HIGHER THAN VIX INDEX

Since June 1, 2016, the avg. daily closing levels were 17.2 for the VIX 5-month futures, and 12.6 for VIX Index. Over the past year, the VIX usually has been in contango and the forward expectations of VIX levels usually have been higher than the levels of the VIX Index.

2 VIX futures 1 Four Facts to Help Address the Issue – Is the VIX “Low” This Year? at vixtrade.com

SPX IMPLIED VOLATILITY OFTEN DIFFERS FROM VIX INDEX

 Since June 1, 2016, the avg. daily closing levels were 31.8 for implied vol of SPX options at 80% moneyness (thus higher implied vol for out-of-the-money SPX protective puts), and 12.6 for VIX Index. While the early-2017 Federal Reserve minutes  “expressed concern [about] the low level of implied volatility in equity markets,” it is worth noting that the SPX implied volatility levels at both 80% and 90% moneyness (corresponding with out-of-the-money puts used for portfolio protection) generally were much higher than the VIX levels. It appears that some investors have quite a bit of interest in vehicles that can be used to hedge big downside risk.

Since June 1, 2016, the avg. daily closing levels were 12.6 for VIX Index, and 10.0 for the 30-trading-day implied volatility of at-the-money SPX options. While some people question whether VIX is too low, it is worth noting that the average levels for Bloomberg’s estimate of A-T-M implied volatility were 2.6 points lower than the VIX Index.

3 VIX implied 1 Four Facts to Help Address the Issue – Is the VIX “Low” This Year? at vixtrade.com

 

CBOE SKEW INDEX RECENTLY IS HIGHER

The avg. daily closing levels for the CBOE SKEW Index are 118.9 since January 1990, but a much higher 132.0 since June 1, 2016. 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. www.cboe.com/SKEW Implied volatility for O-T-M SPX puts (used for portfolio protection) generally recently has been much higher than implied vol for A-T-M SPX options.

4 SKEW Oct 6 Four Facts to Help Address the Issue – Is the VIX “Low” This Year? at vixtrade.com

VIX EVENT IN CHICAGO ON OCT. 19

An upcoming event on Current Dynamics of the VIX Market will be held at 4:00 p.m. CT on Thursday, October 19, at CBOE. For more information and to register, please visit http://bit.ly/VIX-Oct-19 – the event is for financial professionals only.

MORE INFORMATION

More information on how VIX-related products can help with management of your portfolio is at www.cboe.com/VIX and www.cboe.com/volatility.

 

 Four Facts to Help Address the Issue – Is the VIX “Low” This Year? at vixtrade.com >

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 >

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 >

2017 Volume Rises for VIX and SPX Options, and for VIX Futures

Monday, May 8, 2017 – After the results of the French election were announced yesterday, this was a notable day in the options and volatility markets –

  • The CBOE Volatility Index® (VIX®) fell 0.80 points and closed at 9.77 (it lowest daily close since December 1993);
  • Bloomberg’s estimate of 30-trading day historic volatility for the S&P 500 Index fell to 6.52;
  • The CBOE SKEW Index (SKEW) fell 3.24 points to close at 128.12 (still well above its long-term-average of 118.6)

Today I received multiple questions from customers about press coverage of options volume trends. While many observers believe that low volatility often can inhibit options volume growth, some investors like the idea of purchasing relatively “cheap” options protection when the VIX Index is well below its long-term average.

TRENDS IN VOLUME AND OPEN INTEREST FOR KEY INDEX OPTIONS AND FUTURES

VIX futures average daily volume rose to 265, 954 in Jan.-April 2017, and it is up for the 11th year in a row.

1 VIX Futures ADV Thru April 2017 Volume Rises for VIX and SPX Options, and for VIX Futures at vixtrade.com

VIX options average daily volume rose to 712,490 in Jan.-April 2017.

2 VIX options a d v thru April 2017 Volume Rises for VIX and SPX Options, and for VIX Futures at vixtrade.com

In March 2017 the VIX options open interest rose to more than 12.8 million contracts.

3 VIX options total open interest 2017 Volume Rises for VIX and SPX Options, and for VIX Futures at vixtrade.com

In March 2017 the VIX call options open interest rose to more than 9 million contracts.

4 VIX options calls puts opne interest 2017 Volume Rises for VIX and SPX Options, and for VIX Futures at vixtrade.com

SPX options average daily volume rose to 1,161936 in Jan.-April 2017.

5 SPX a d v thru April 2017 2017 Volume Rises for VIX and SPX Options, and for VIX Futures at vixtrade.com

MORE INFORMATION

To learn more about use of SPX and VIX options, and VIX futures, please visit www.cboe.com/SPX and www.cboe.com/VIX.

 

 2017 Volume Rises for VIX and SPX Options, and for VIX Futures at vixtrade.com >

Portfolio Protection, Tail Risk and 11 Histograms

With U.S. stock market indexes recently hitting all-time highs, there is quite a bit investor uncertainty about the markets and there is high demand for protection from large market declines. One metric providing evidence of this high demand is the CBOE SKEW Index (SKEW). In the 27 years from 1990 through 2016, the average daily level for the SKEW Index was 118.4, and the average level of SKEW never topped 130 in any of those 27 years. In the year 2017 (through February 7) the average daily level of the SKEW Index was a relatively high 131.7, which could indicate increased relative demand for use of out-of-the-money SPX put options for portfolio protection.

Histograms and Profit-and-Loss Diagrams

Tools that can be helpful to investors who are attempting to assess the utility of various options-based strategies include (1) histograms with analyses of monthly returns for several CBOE benchmark indexes, and (2) profit-and-loss diagrams.  CBOE provides more than 30 strategy benchmark indexes that can help investors compare and contrast the hypothetical performance of different options strategies in different market scenarios. www.cboe.com/benchmarks.

Below are 11 histograms that compare past performance of CBOE option-related benchmark indexes and related stock indexes. These histograms can provide valuable information to investors who have high aversion to losses or a desire for more upside potential.

As shown in the 11 histograms below, the “best” big-loss-avoidance past performance by an index — in terms of avoiding monthly losses of 6% or more – was by the CBOE S&P 500 Iron Butterfly Index (BFLY). In the 30+ year period from July 1986 through January 2017, the number of months that indexes had loss of worse than 6% were –

The CBOE VIX Tail Hedge Index (VXTH) buys and holds S&P 500 stocks, and also often buys 30-delta call options on the CBOE Volatility Index® (VIX®).

1070 VXTH Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

 

1012 BFLY Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

The CBOE S&P 500 Iron Butterfly Index (BFLY) tracks the performance of a hypothetical option trading strategy that 1) sells a rolling monthly at-the-money (ATM) S&P 500 Index (SPX) put and call option; 2) buys a rolling monthly 5% out-of-the-money (OTM) SPX put and call option to reduce risk; and 3) holds a money market account invested in one-month Treasury bills, which is rebalanced on the option roll day and is designed to limit the downside return of the index. Compare the CBOE BFLY Index histogram above with the iron butterfly profit-and-loss diagram below. It appears that certain iron butterfly strategies could have the potential to lessen the probability of huge upside and downside moves.

1015 ironbutterfly PL Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

 

1020 CLL Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

The CBOE S&P 500 95-110 Collar Index (CLL) purchases stocks in the S&P 500 index, and each month sells SPX call options at 110% of the index value, and each quarter purchases SPX put options at 95% of the index value.

1025 Collar PL Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

 

1030 RXM Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

The CBOE S&P 500 Risk Reversal Index (RXM) is a benchmark index designed to track the performance of a hypothetical risk reversal strategy that: (1) buys a rolling out-of-the-money (delta ? 0.25) monthly SPX Call option; (2) sells a rolling out-of-the-money (delta ? – 0.25) monthly SPX Put option; and (3) holds a rolling money market account invested in one-month Treasury bills to cover the liability from the short SPX Put option position.

1040 CLLZ Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

The CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ) tracks the performance of a hypothetical option trading strategy that 1) holds a long position indexed to the S&P 500 Index; 2) on a monthly basis buys a 2.5% – 5% S&P 500 Index (SPX) put option spread; and 3) sells a monthly out-of-the-money (OTM) SPX call option to cover the cost of the put spread.

1060 CNDR Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

The CBOE S&P 500 Iron Condor Index (CNDR) tracks the performance of a hypothetical option trading strategy that 1) sells a rolling monthly out-of-the-money (OTM) S&P 500 Index (SPX) put option (delta ? – 0.2) and a rolling monthly out-of-the-money (OTM) SPX call option (delta ? 0.2); 2) buys a rolling monthly OTM SPX put option (delta ? – 0.05) and a rolling monthly OTM SPX call option (delta ? 0.05) to reduce risk; and 3) holds a money market account invested in one-month Treasury bills, which is rebalanced on option roll days and is designed to limit the downside return of the index.

1065 ironcondor PL Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

 

1100 PPUT Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

1080 PUT Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

 

1095 cs PutWrite PL Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

1110 CMBO Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

1115 cov Combo PL Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

 

1120 BXM Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

1135 ATM Buywrite PL Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

With the at-the-money (A-T-M) buy-write strategy, an investor often takes in more options premium, but has no participation in stocks’ upside moves, when compared with the out-of-the-money (O-T-M) buywrite strategy. Compare right and left tails for the BXM Index above versus the BXMD Index below.

1140 BXMD Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

1155 OTM BuyWrite Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com

MORE INFORMATION

A representatives of Wilshire will discuss CBOE Benchmark indexes and downside risk at the 33rd Annual CBOE Risk Management Conference (RMC) next month www.cboermc.com.

For additional information about the CBOE benchmark indexes and related white papers on portfolio management, please visit www.cboe.com/benchmarks.

More information on tail risk and histograms is at www.cboe.com/histograms.

 Portfolio Protection, Tail Risk and 11 Histograms at vixtrade.com >

Demand for Disaster Protection Increases as CBOE SKEW Index Hits a Six-Month High – By Matt Moran

JAN. 18, 2017 – Today the CBOE SKEW Index (SKEW) closed at 143.43, its highest value since June 2016. 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.

SKEW Jan 18 Demand for Disaster Protection Increases as CBOE SKEW Index Hits a Six Month High – By Matt Moran at vixtrade.com

The FAQ on the SKEW Index notes that –

“The price of S&P 500 skewness is inconvenient to use directly as an index because it is typically a small negative number, for example -.8, -2.3, or -4.3. SKEW converts this price as follows: SKEW = 100 – 10 * price of skewness.  With this definition, a price of -2.1 translates to a SKEW value of 121. S&P 500 options with 30 days to expiration are generally unavailable. SKEW is therefore interpolated from two “SKEW” values at the maturities of nearby and second nearby options with at least 8 days left to expiration.”

HIGHER SKEW VALUES IN RECENT YEARS

The average value of SKEW (since the beginning of its data history in 1990) has been 118.4. Prior to 2014, the highest average daily closing value in a year for the SKEW Index was 122.5, but in each of the years 2014, 2015, 2016, and year-to-date 2017, the average daily closing level for the SKEW Index was 127.5 or higher.

 SKEW since 1990 through Jan 18 Demand for Disaster Protection Increases as CBOE SKEW Index Hits a Six Month High – By Matt Moran at vixtrade.com

30 ½ YEARS — BENCHMARK INDEXES AND SPX PUT OPTIONS

For investors who wish to learn more about hypothetical long-term performance of strategies that use index options, CBOE provides more than 30 strategy benchmark indexes. Note in the two charts below that the left tail risk was higher for the S&P 500 Index than it was for two indexes that use SPX put options – the CBOE S&P 500 PutWrite Index (PUT) sells cash-secured SPX options, while the CBOE S&P 500 5% Put Protection Index (PPUT) buys out-of-the-money protective put options on the SPX Index.

3 PUT Histogram Demand for Disaster Protection Increases as CBOE SKEW Index Hits a Six Month High – By Matt Moran at vixtrade.com

4 PPUT Histogram Demand for Disaster Protection Increases as CBOE SKEW Index Hits a Six Month High – By Matt Moran at vixtrade.com

MORE INFORMATION

For more information on skew and use of options for protection and income, please visit www.cboe.com/SKEW and www.cboe.com/benchmarks.

 Demand for Disaster Protection Increases as CBOE SKEW Index Hits a Six Month High – By Matt Moran at vixtrade.com >

20 Volatility Indexes in 2016: BPVIX Rose 277% Pre-Brexit, and On Election Night VIX Futures Rose 55%

Dozens of worldwide volatility indexes can serve as valuable tools for investors who wish to gauge intraday and long-term sentiment changes related to a variety of asset classes. In addition, investors take long and short positions in futures and options on key volatility indexes.

The tables and seven graphs below provide an overview of the 2016 performance of 20 volatility indexes and the CBOE SKEW Index. Key points regarding volatility indexes in 2016 include the following:

  • There were some big moves in volatility indexes around the June 24 Brexit vote and the November 8 U.S. election.
  • New all-time daily trading volume records for futures on the CBOE Volatility Index® (VIX®) during Extended Trading Hours (non-U.S. hours from 3:30 p.m. to 8:30 a.m.) were set on June 24 (235,141 contracts) and again on November 9 (263,663 contracts).
  • The prices for VIX futures rose 55% over a 140-minute period on the night of November 8 (see Exhibit 2 below).
  • The daily closing values of the CBOE/CME FX British Pound Volatility Index (BPVIX) rose from 7.72 on Jan. 8th, to 29.10 on June 14th, a rise of 277% (see Exhibit 3 below). Implied volatility on the British pound was one of the financial markets’ biggest major movers in the months leading up to the Brexit vote (see Exhibit 3 below).
  • While the average daily closing value of the VIX Index in 2016 was 15.8 (below its long-term average of 19.7 since 1990), the average daily closing value of the CBOE SKEW Index was 127.6 (the second highest level among all its 27 years since 1990). These numbers could indicate that demand for hedging with deeper out-of-the-money S&P 500® (SPX) protective puts options could have been stronger in 2016.

VIX INDEX AND THE EXPECTED VOLATILITY OF THE S&P 500 INDEX

The CBOE Volatility Index® (VIX® Index) is a leading measure of market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices.

In 2016 the daily closing values of the VIX ranged from 11.27 to 28.14, and the VIX rose a record ninth straight trading day on November 4 (prior to the U.S. election).

VVw1 VIX SPX 20 Volatility Indexes in 2016: BPVIX Rose 277% Pre Brexit, and On Election Night VIX Futures Rose 55% at vixtrade.com

VIX FUTURES ON NOVEMBER 8 AND 9

On the November 8 Tuesday election night in the United States, the reported prices for the November futures on the VIX Index rose from a low of 15.10 at 8:07 p.m. E.T., to a high of 23.46 at 10:27 p.m. E.T., a rise of 55% over a 140-minute period (source: Bloomberg). Reported volume for VIX futures during non-U.S. trading hours was an all-time record of 263,663 contracts during the November 9 trading session (which technically began at 3:30 p.m. C.T. the day before. www.cboe.com/ETH).  On Wednesday morning, the price of the VIX Nov. futures fell below 16, as a story at cbsnews.com noted that “Conciliatory comments from U.S. President-elect Donald Trump in the aftermath of his stunning victory over Hillary Clinton helped global stock markets erase a large chunk of their earlier losses Wednesday.”

 V 2 VIX Futures on Nov 8 9 20 Volatility Indexes in 2016: BPVIX Rose 277% Pre Brexit, and On Election Night VIX Futures Rose 55% at vixtrade.com

CURRENCY AND INTEREST RATE VOLATILITY

While average daily close for the BPVIX Index was 12.0 in 2016, the BPVIX Index soared to 29.1 on June 14, prior to the Brexit vote.  Futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) are available, and some observers believe that interest rate volatility could soar in 2017.

V 3 Curr Int Rate Vola in 2016 20 Volatility Indexes in 2016: BPVIX Rose 277% Pre Brexit, and On Election Night VIX Futures Rose 55% at vixtrade.com

COMMODITY VOLATILITY INDEXES IN 2016

In 2016 the CBOE Crude Oil ETF Volatility Index (OVX) hit a daily closing value peak of 78.97 on February 12, and it closed the year at 30.83.

V 4 Commodity Volatility 20 Volatility Indexes in 2016: BPVIX Rose 277% Pre Brexit, and On Election Night VIX Futures Rose 55% at vixtrade.com

WORLDWIDE VOLATILITY INDEXES IN 2016

In 2016 the peak daily closing values were 37.99 for the HIS Volatility Index (Hong Kong) and 39.90 for the EuroSTOXX 50 Volatility Index.

VVw5 Global Vola 20 Volatility Indexes in 2016: BPVIX Rose 277% Pre Brexit, and On Election Night VIX Futures Rose 55% at vixtrade.com

VOLATILITY ON SINGLE STOCKS

In 2016 the average daily closing values were 30.9 for the VXAZN Index, 23.6 for the VXGOG Index, and 25.3 for the VXAPL Index. Exhibit 6 shows that the VXAZN Index had some big moves, and that the earnings announcement dates for Amazon in 2016 were on January 28, April 28, July 28, and October 27.

V 6 Vol Stocks 20 Volatility Indexes in 2016: BPVIX Rose 277% Pre Brexit, and On Election Night VIX Futures Rose 55% at vixtrade.com

SKEW, VVIX AND VIX INDEXES

In 2016 the highest daily closing values were 153.66 for the CBOE SKEW Index on June 28, and 125.13 for the CBOE VIX of VIX Index (VVIX) on June 24. Both indexes hit relatively high levels around the June 24 Brexit vote and the November 8 U.S. election, as there was uncertainty as to how these events might impact equity markets.

V 7 SKEW VVIX 2016 20 Volatility Indexes in 2016: BPVIX Rose 277% Pre Brexit, and On Election Night VIX Futures Rose 55% at vixtrade.com

BENCHMARK INDEXES

The volatility indexes above are designed to primarily serve as gauges for market expectations of future volatility, and are not meant to show investable performance.

For those investors who would like to explore the possibility of investing in VIX futures and options, there are certain benchmark indexes that are designed to show the potential for investable performance for certain strategies that use VIX futures or VIX options. Here are the 2016 changes for a sampling of the many benchmarks that use VIX futures or VIX options –

  • 28.8%               S&P 500 VIX Futures Term-Structure Index TR
  • 25.2%               VPD – CBOE VIX Premium Strategy Index
  • 23.0%               VPN – CBOE Capped VIX Premium Strategy Index
  • 8.3%                 S&P 500 Dynamic VIX Futures Index TR
  • 1.1%                 VSTG – CBOE VIX Strangle Index
  • 1.0%                 VXTH – CBOE VIX Tail Hedge Index
  • 0.1%                 S&P 500 Dynamic VEQTOR Index TR
  • -28.3%              S&P 500 VIX Futures Tail Risk Index TR – Short Term

To learn more about the CBOE benchmark indexes, please visit www.cboe.com./benchmarks, and read closely the related disclosures and disclaimers. Past performance is not predictive of future returns.

MORE INFORMATION ON VOLATILITY INDEXES

Please visit www.cboe.com/volatility for links to information on more than 25 volatility indexes, strategies and a bibliography.

 20 Volatility Indexes in 2016: BPVIX Rose 277% Pre Brexit, and On Election Night VIX Futures Rose 55% 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 >

Will VIX Futures Prices Move During the Sunday Night Debate? – By Matt Moran

OCTOBER 7. 2016 – On the night of September 26 a debate-record 84 million people tuned in to watch the first of three U.S. Presidential debates. During the debate there were movements in the prices of futures on the CBOE Volatility Index® (VIX®), S&P 500® futures, and the Mexican peso (see below for a chart and more information).

If you would like to follow the movements of VIX futures during the upcoming Presidential debate on from 8:00 to 9:30 p.m. CT this Sunday, October 9, here are three resources for you –

AROUND-THE-CLOCK TRADING OF VIX FUTURES

The trading hours for VIX futures begin at 5:00 p.m. Chicago time on Sundays, and VIX futures are offered more than 23.5 hours a day during the trading week Last month the average daily volume for VIX futures during extended trading hours (from 3:30 p.m. to 8:30 a.m.) was 31,901 contracts. www.cboe.com/ETH.

1 VIX Fut ETH volume Will VIX Futures Prices Move During the Sunday Night Debate? – By Matt Moran at vixtrade.com

EXPIRATION DATES FOR VIX FUTURES

At around noon Chicago time on Friday, October 7, the VIX Index spot price was 13.88, and the VIX futures prices are shown in the table below.

2 VIX fut expirations table Will VIX Futures Prices Move During the Sunday Night Debate? – By Matt Moran at vixtrade.com

MARKET MOVEMENTS DURING THE FIRST DEBATE ON THE NIGHT OF SEPTEMBER 26

During the first presidential debate on September 26 (from 8:00 to 9:30 p.m. CT) –

  • VIX futures prices fell,
  • S&P 500 futures prices rose.
  • Mexican peso rose in value (vs. U.S. dollar).

As shown in the chart below, during the 90 minutes of the first debate, the VIX October futures fell by about 0.50 points. (Please note that the new trading day for VIX futures usually starts at 3:30 p.m. the previous calendar day, and so on the calendar night of September 26, the September 27 trading day already had begun).

3 VIX Fut on Sep 26 Will VIX Futures Prices Move During the Sunday Night Debate? – By Matt Moran at vixtrade.com

A 1290-word analysis by Professor Justin Wolfers of the University of Michigan noted that —

” … During the debate, the overnight [stock index] futures markets rallied, raising the value of broad stock market gauges like the Standard & Poor’s 500-stock index by two-thirds to three-quarters of a percentage point. This was a consequential move, … the rally occurred between 9 and 11 p.m. on a Monday, typically a fairly tranquil time and, in this case, a stretch in which there was no other important economic or financial news. … the rise in stock prices was unusually large for that particular time period — larger than during the same window on all but one of the 200 previous Mondays. It appears to be a statistically significant move … ”

Regarding the Mexican peso, a September 27 news story at http://money.cnn.com noted that —

“As Trump and Hillary Clinton sparred on live TV, one key financial barometer of the Republican nominee’s prospects started moving sharply: the Mexican peso soared more than 2% against the dollar. In recent weeks, the Mexican currency has been moving in the opposite direction to Trump’s poll numbers. As they have improved, the peso has dropped, hitting an all-time low against the dollar ahead of Monday night’s debate. Its sudden leap during the debate was a clear reaction to Trump’s performance, according to Ihab Salib, head of international fixed income at Federated Investors. …”

 CONCLUSION

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

 Will VIX Futures Prices Move During the Sunday Night Debate? – By Matt Moran at vixtrade.com >

Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran

Below are updates on (1) VIX futures, (2) SPXW Wednesday-Expiring Weekly options, and (3) the BPVIX Index.

(1.) RECORD OPEN INTEREST. Futures on the CBOE Volatility Index® (VIX®), which launched in 2004, experienced some milestones regarding open interest in recent days –

  • VIX futures open interest surpassed 500,000 for the first time on June 6;
  • VIX Futures open interest hit a new all-time record high of 501,835 on June 7. www.cboe.com/VIX.

1 VIX futuresrecord open interest Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran at vixtrade.com

(2.)  RECORD VOLUME. On February 23, 2016, CBOE launched trading of weekly options on the S&P 500® Index which expire on Wednesdays. The average daily volume for SPXW Wednesday-Expiring Weekly options grew to a record 74,114 in May, and then to 105,768 so far this month (through June 14).  www.cboe.com/SPXW.

1 Wed Exp Weekly volume Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran at vixtrade.com

CBOE’s February press release noted –

“We are pleased to further expand our SPX product complex with the introduction of SPX Weeklys with Wednesday expirations,” said CBOE Holdings CEO Edward T. Tilly. “Wednesday Weeklys, in addition to end-of-the-week expirations, will increase opportunities to trade SPX and enable investors to better target specific expirations. Wednesday Weeklys will align with VIX Weeklys futures and options, which also expire on Wednesdays, to provide greater trading flexibility for the increasing number of customers who use both our SPX and VIX product suites.”

(3.)  BPVIX RISES 322% IN 2016 (Y-T-D) ON BREXIT CONCERNS

The CBOE/CME FX British Pound Volatility Index (BPVIX) rose around 322% year-to-date (through June 16). Much of the rise in the index has been attributed to anxiety re the possible impact of the Brexit in/out referendum on June 23.

3 Volatility indexes BPVIX VIX Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran at vixtrade.com

For more information on volatility indexes, and on VIX futures and options, please visit www.cboe.com/volatility.

 Records for VIX Futures and for SPXW Wednesday Expirations – by Matt Moran at vixtrade.com >

BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options

On Monday the CBOE/CME FX British Pound Volatility Index (BPVIX) closed at 22.59, its highest daily close since March 2009, and the BPVIX Index has risen 161.8% so far this year (through June 6). A number of news articles have noted that the implied volatility for British Pound has risen during the past month because of concern about the upcoming June 23 Brexit referendum.

1 Vola indexes Three  BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com

Recent headlines for news stories included (1) “Pound Falls, Volatility Jumps as Polls Show Momentum for Brexit” (Bloomberg on June 5), and (2) “Sterling volatility heads higher as Leave camp builds lead” (Financial Times on June 6). In addition, Timothy Edwards posted a VIX Views blog on “Divining Brexit.”

The BPVIX Index is not tradable and there are no BPVIX listed futures or options. As the vote on Brexit approaches, traders and investors could keep an eye on the volatility skew and term structure for key listed options.

VOLATILITY SKEW FOR KEY OPTIONS

Listed options are available on the CurrencyShares British Pound Sterling Trust (FXB). The FXB delivers exposure to changes in value of the British pound relative to the US dollar. At the end of last month the open interest for the FXB ETF options was 30,874 for the FXB put options, and 8,649 for FXB call options. The next chart below shows the volatility skew for the FXB options at the close on June 6 (when the FXB closed at 141.43). Note that the implied volatility for the out-of-the-money (OTM) FXB put options generally is much higher than the implied volatility for the OTM FXB call options, indicating high investor fear about possible future downside moves of the FXB.

2 FXB Skew BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com

The two charts below show Bloomberg estimates of 30-trading-day impled volatility for five option classes. Note that for all the options classes (except VIX) in the charts below, the implied volatility at 90% moneyness is higher than the at-the-money (ATM) implied volatility, while the implied volatility for VIX at 110% moneyness is higher than the VIX ATM implied volatility.

4 Skew US BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com

A valuable tool to see long-term trends in SPX skew and investors’ concerns about catastrophic risk is the CBOE SKEW Index at www.cboe.com/SKEW.

WEEKLY INDEX OPTIONS AND TERM STRUCTURE

CBOE offers SPX Weeklys that expire on Wednesdays and Fridays, and VIX Weeklys that expire on Wednesdays. Weeklys options can provide opportunities for investors to implement more targeted buying, selling or spreading strategies. Weeklys options can help investors efficiently take advantage of market events, such as earnings, government reports, voter elections and referenda, and Fed announcements.

A May 29 Business Insider post noted that Goldman Sachs options analysts issued a report that considers the messages volatility term structure is sending. The Business Insider post stated that —

Looking at the S&P 500 implied volatility term structure, a downward hook, or “kink” as the Goldman report says, is noticed just before the June 14-15 Fed meeting. Looking at term structure, markets are pricing in volatility around the June 23rd Brexit vote, but not necessarily the June 14-15 Fed meeting nor the U.S. Presidential election. “Elevated event risk creates “kinks” in term structures,” Gregory and Timcenko wrote. “The term structure of implied volatility is typically smooth and upward sloping. Excess hedging demand around specific expirations creates kinks in the term structure and provides clues as to how event risk is being priced.”

Below are CBOE-created term structure charts with Bloomberg estimates for select dates for OTM SPX puts and VIX calls at certain strike prices. With the Brexit vote scheduled for Thursday, June 23, it will be interesting to see how implied volatility moves around that date for the key index options. You can see the term structure for many more SPX standard expiration dates at www.cboe.com/VIXTerm.

5 Term structure BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com

 BPVIX Hits Highest Level in 7 Years, So Let’s See the Skew and Term Structure for Listed Options at vixtrade.com >