Options on Ten Select Sector Indices To Launch

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

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

CHART 1 – WEIGHTINGS FOR S&P SELECT SECTOR INDEXES

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

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

CHART 2 – TICKERS, NOTIONAL VALUE, HISTORIC VOLATILITY

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

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

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

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

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

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

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

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

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

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

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

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

CHART 6 – CORRELATIONS AMONG 12 INDICES OVER FIVE YEARS

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

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

EUROPEAN INVESTORS AND UCITS

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

MORE INFORMATION

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

 

 

 

 Options on Ten Select Sector Indices To Launch at vixtrade.com >

VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery

On June 1st the CBOE Volatility Index® (VIX®) closed at 9.89. June 1st marked only the 14th day on which the VIX Index closed below 10 (its price history begins in 1990). Six of the 14 days on which the VIX Index closed below 10 occurred in 2017 (see Exhibit 1 below for a list of all 14 dates).

In addition, on June 1st the CBOE SKEW Index closed at 124.55, a relatively high level that indicated strong demand for SPX put options that could help protect against a severe downturn in the stock market.

REMARKS AT CFA ANNUAL CONFERENCE

On May 21 through 24 I listened to several outstanding speakers 70th CFA Institute Annual Conference in Philadelphia. Speakers’ remarks that were among the most interesting and relevant to me were on the topic of the current levels of volatility and the VIX Index. I found the following volatility comments of two speakers particularly intriguing —

  • In a Q&A session on May 21, Richard H. Thaler, the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the Booth School of Business, University of Chicago, answered a question on volatility by noting that the current low level of the VIX Index was the biggest [financial] mystery of our time, in light of the fact that we live in a time of great uncertainty, regardless of one’s political views, and whether or not one is supportive of the program of the current U.S. President. Professor Thaler said we face surprises when we read early morning tweets, and that when animals are afraid, they often freeze up.
  • In her prepared remarks on May 24, Abby Joseph Cohen, CFA, Advisory Director and Senior Investment Strategist, Goldman Sachs & Co., noted that realized volatility for major indices sharply declined following Euro-zone worries in late 2011, but realized volatility is now increasing. In answer to a question about concerns for future volatility, Ms. Cohen said she was even more concerned about the potential for future higher bond market volatility when compared to future equity market volatility.

In addition, minutes from the Federal Reserve in early 2017expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook for … policy initiatives …”

VIX INDEX VALUES

The CBOE Volatility Index (VIX) is a measure of market expectations of 30-calendar-day volatility conveyed by S&P 500 Index (SPX) option prices. The VIX White Paper notes that the VIX Index estimates expected volatility by averaging the weighted prices of SPX puts and calls over a wide range of strike prices.  The selected options are out-of-the-money SPX calls and out-of-the-money SPX puts centered around an at-the-money strike price. I recently have heard comments and questions on the topic of why the VIX Index recently has been lower than its long-term average, and I also have been asked if there continues to be interest in hedging of downside risk in stock portfolios. The average of the daily closing values on the VIX Index was 19.7 in the 27 years from 1990 through 2016, but only 11.8 year-to-date in 2017 (through June 1).

EXHIBIT 1 – VIX INDEX CLOSED BELOW 10 ON 14 DATES

1 VIX below 10 14 dates table VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery at vixtrade.com

EXHIBIT 2 – VIX INDEX SINCE 1990

2 VIX line thru June 1 VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery at vixtrade.com

While some commenters point to macroeconomic factors and Fed policies that could impact the levels of VIX, below are three discussion points (re: skew, historic volatility, and term structure) with charts that help better explain the relatively low level of the VIX Index.

HIGH SKEW AND MORE INTEREST IN HEDGING SEVERE DOWNTURNS

While the VIX Index recently has been below its long-term average, there still has been strong demand for use of stock index options to hedge severe downturns in the stock markets.

So far in 2017, there usually has been a relatively high volatility skew for SPX options, in that the implied volatility for the out-of-the-money (O-T-M) SPX put options usually has been much higher than the implied volatility for the at-the-money (A-T-M) SPX options. Bloomberg’s estimates average 30-trading-day implied volatilities for SPX options in 2017 were (through May 25): (1) about 31.7 for SPX options at 80% moneyness (this implied volatility could apply to SPX protective put options that are 20% out-of-the-money), and (2) about 9.2 for SPX options that are at 100% moneyness (or at-the-money).

EXHIBIT 3 – SPX OPTIONS IMPLIED VOLATILITIES – CHART WITH ESTIMATES FROM CBOE LIVEVOL   

3 Vol Skew SPX on June 1 VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery at vixtrade.com

A metric that investors can use to track the relative demand for disaster protection is the CBOE SKEW Index, which is calculated from weighted strips of out-of-the-money S&P 500 options, and rises to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence. If there were no tail risk expectations, the SKEW Index would be equal to 100.

EXHIBIT 4 – CBOE SKEW INDEX

4 SKEW thru June 1 VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery at vixtrade.com

The averages of the daily closing values of the SKEW Index were 118.4 in the 27 years from 1990 through 2016, and 134.5 in 2017 (through June 1).

VIX INDEX HAS BEEN HIGHER THAN SPX HISTORIC VOLATILITY

While some people have recently questioned as to how the VIX Index values could be in a “low” range from 9.7 to 12 on most days in the past month, one should note that the historic volatility of the S&P 500 Index recently has been even lower than the VIX. When compared to SPX historic volatility, one could argue that VIX has not necessarily been “low.” The averages of daily closing values in May (through May 30) were 10.9 for the VIX Index, 7.4 for the 30-trading-day historic volatility of the S&P 500 Index, and 4.6 for the TYVIX Index (an index that reflects the expectations of interest rate volatility; in her remarks, Abby Joseph Cohen expressed concern about the possibility for a spike in interest rate volatility).

EXHIBIT 5 – RECENT VOLATILITY SINCE MAY 1ST

 5 VIX HV TYVIX May VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery at vixtrade.com

TERM STRUCTURE – VIX FUTURES PRICES ARE HIGHER THAN VIX SPOT PRICE

For those folks who ask about the “low” level of the VIX Index, one response would be to say that folks are welcome to explore the prices of the tradable VIX futures. As shown in the VIX futures term structure chart below, the quoted prices were 10.59 for the VIX spot index, and the quoted prices for the VIX futures (which are based on the forward values of the VIX Index, and reflect expectations of 30-day volatility at future dates) ranged from 10.90 for the VIX futures expiring on June 7, to 17.40 for the VIX futures expiring on February 14, 2018.

EXHIBIT 6 – VIX TERM STRUCTURE IS IN CONTANGO AND UPWARD-SLOPING

6 VIX Term stuct May 31 VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery at vixtrade.com

FOUR BENCHMARK INDEXES

For investors who are interested in equity portfolio protection with SPX options at times when price-earnings ratios are relatively high, and the VIX Index is at relatively low levels, four benchmark indexes that could be explored are:

  • 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. www.cboe.com/CLL
  • CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ) – track 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. www.cboe.com/CLLZ.
  • 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). www.cboe.com/VXTH.
  • CBOE S&P 500 5% Put Protection Index (PPUT) – strategy that holds a long position indexed to the S&P 500 Index and buys a monthly 5% out-of-the-money (OTM) S&P 500 Index (SPX) put option as a hedge. www.cboe.com/PPUT.

CONCLUSION

For people who ask me about the VIX Index recently being much lower than its long-term average, I suggest that they look at the following three factors to gain a fuller picture of implied volatility, and the interest in and costs for hedging strategies –

  • The SPX skew and the related SKEW Index have been relatively high in recent years, and there still is strong demand for hedging severe downside risk;
  • The VIX Index generally has been higher than the historic volatility of the S&P 500 Index in 2017 (using this comparison, one could argue that the VIX has not necessarily been “low”); and
  • While the VIX Index was valued at 10.68 on the morning of May 30, the VIX futures term structure chart showed that most tradable VIX futures were priced higher than the VIX spot index.

 VIX Index Closes Below 10 Again, As Professor Called the VIX Level the Biggest Financial Mystery at vixtrade.com >

CBOE SKEW Index Rises to 141.41, with Increased Demand for Portfolio Protection

FEB. 16, 2017 – Today the CBOE SKEW Index rose to 141.41, its highest level this month, and its 25th highest value since January 1990. 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. 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 16) the average daily level of the SKEW Index was a relatively high 132.2, which could indicate increased relative demand for use of out-of-the-money SPX put options for portfolio protection.

1 SKEW since 1990 Feb 16 CBOE SKEW Index Rises to 141.41, with Increased Demand for Portfolio Protection at vixtrade.com

2 SKEW thru Feb 16 CBOE SKEW Index Rises to 141.41, with Increased Demand for Portfolio Protection 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 expected tail risk of S&P 500 returns. If there were no tail risk expectations, SKEW would be equal to 100. Historically, SKEW has varied in a range of 100 to 147 around an average value of 115.

The FAQ on the CBOE 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.”

For more information please visit www.cboe.com/SKEW.

 CBOE SKEW Index Rises to 141.41, with Increased Demand for Portfolio Protection at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 1/8/2017

S&P 500 implied volatility was lower across all four time periods that are measured by CBOE Volatility Indexes last week.  VXST finished the week at 9.19 which is actually a tad higher than the low for 2016.  VIX also finished near the 2016 low of 11.27 but finished 0.05 above that level.  As a Trump presidency looms over the markets, with all the rhetoric and fear of what this means for the world, it’s a bit amazing market volatility is so low.

VXST VIX VXV VXMT Weekend Review – Volatility Indexes and ETPs – 1/8/2017 at vixtrade.com

The table below shows volatility under pressure in all places except bonds as TYVIX gained 4.44% which also made it the biggest gainer among volatility indexes quoted by CBOE last week.

VXX Table Weekend Review – Volatility Indexes and ETPs – 1/8/2017 at vixtrade.com

We got a reset on the VXX – SVXY – UVXY performance chart, but with volatility remaining low all week SVXY already has a 40% lead on UVXY after just four trading days.

UVXY SVXY VXX YTD Perf Weekend Review – Volatility Indexes and ETPs – 1/8/2017 at vixtrade.com

Even through there were a lot of red numbers associated with volatility last week, I was able to find a bullish VXX trade from Friday.  With VXX at 21.97 there was a buyer of the VXX Jan 20th VXX 23.00 Calls who then sold the VXX Jan 20th 24.50 Calls for 0.28 and a net cost of 0.24.  The payout if we get a resurgence of volatility and VXX over 24.50 on the close in two weeks is 1.26.

VXX PO Weekend Review – Volatility Indexes and ETPs – 1/8/2017 at vixtrade.com

 Weekend Review – Volatility Indexes and ETPs – 1/8/2017 at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 10/30/2016

As a good number, but not all (some of us are White Sox fans) of the traders on the floor at CBOE were starting to think about where they were going to be that evening to watch Game 3 of the World Series, some news broke that shook the equity markets.  I don’t need to regurgitate all that here.  In fact, regurgitate is a good word to describe the election process this year.

VXST VIX VXV VXMT Weekend Review – Volatility Indexes and ETPs – 10/30/2016 at vixtrade.com

 

The curve below is partially a result of the uncertainty around the election, but also reflects a relationship that I think would have existed with or without the newest twist to the election.  Note the purple box below highlighting the difference between VXST and VIX with VXST at a slight premium.  This time last week VXST was calculated using October 28th and November 4th options.  Now, VXST includes options expiring the Friday after the election. We will never know exactly how much of a boost that gave to VXST, but it must count for something.

I’ve already noted the VXST performance from last week.  Other things that stand out are a rebound in  TYVIX after dipping below 4 last week and the bump up in VVIX which settled under 100 after topping that figure on Friday.

VXX TABLE Weekend Review – Volatility Indexes and ETPs – 10/30/2016 at vixtrade.com

 

Both VXX and UVXY had good weeks, but it is a little too little and a little too late as both funds have suffered from steep contango and low VIX for most of 2016.

VXX SVXY UVXY Weekend Review – Volatility Indexes and ETPs – 10/30/2016 at vixtrade.com

 

 

Finally, a look at the 29 volatility indexes shows broad based volatility up across the board.  On the flip side, four of the five losers last week were individual stock volatility indexes.  Three of those were the result of earnings.  The other loser was volatility on the British Pound which has been very strong of late and was probably due for a rest.

Volatility Indexes Weekend Review – Volatility Indexes and ETPs – 10/30/2016 at vixtrade.com

 Weekend Review – Volatility Indexes and ETPs – 10/30/2016 at vixtrade.com >

Sunday Night Trading of VIX and Stock Index Futures and Currencies During the Presidential Debate – By Matt Moran

October 9, 2016, 11:50 pm CT — Regarding the financial market movements Sunday night around and during the second presidential debate, below are some highlights.

VIX FUTURES

Trading volume for futures on the CBOE Volatility Index® (VIX®) on Sunday night from 5:00 p.m. through 11:15 p.m. exceeded 2,250 contracts.

The chart below shows that the Sunday night prices for the October VIX futures (with an expiration date of October 19) were down 0.345 points at around 9:55 pm C.T. (when compared to the Friday night close).

    Tw 8 VIX fut 9 50 Sunday Night Trading of VIX and Stock Index Futures and Currencies During the Presidential Debate – By Matt Moran at vixtrade.com

The table below shows the 14 tickers and expiration dates for VIX futures.

9 vix EXPIRATIONS Sunday Night Trading of VIX and Stock Index Futures and Currencies During the Presidential Debate – By Matt Moran at vixtrade.com

STOCK INDEX FUTURES  

A CNBC story stated that —

“… No clear winner emerged from the second U.S. presidential debate Sunday night, based on several analysts’ interpretation of market reaction — or lack thereof. … .U.S. stock index futures held slightly higher near earlier levels throughout the entire debate. S&P 500 futures were about 5 points higher and Dow Jones industrial average futures were about 31 points higher, as of 11:08 p.m. ET.”           

PESO, YUAN AND CRUDE OIL

A Bloomberg news story noted that —

“… Mexico’s peso pared its climb after Donald Trump and Hillary Clinton sparred in the second presidential debate. Crude extended losses and the yuan weakened to a six-year low.  The peso, seen as a bellwether for traders’ views on Trump’s prospects, added as much as 2 percent as the Republican candidate was questioned about a video in which he talked about women in vulgar terms, before trimming gains to 1.4 percent after the debate concluded …”

MORE INFORMATION

Please visit the VIX microsite at www.cboe.com/VIX for more information on VIX futures and options.

For an earlier blog that discusses market movements during the first presidential debate, please visit http://bit.ly/VIX-debate.

 Sunday Night Trading of VIX and Stock Index Futures and Currencies During the Presidential Debate – By Matt Moran at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 9/11/2016

VXST more than doubled as a function of the index being depressed in front of the three-day weekend and then in reaction to Friday’s SPX sell off.  As would be expected, the rest of the VXST-VIX-VXV-VXMT curve moved higher as well, but outside of VXST relative to VIX we are still in a state of contango.

VXST VIX VXV VXMT 1 Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com

The 2.39% drop in the S&P 500 all came from Friday’s price action as did just about everything else on the table below.  Note that VXX rose 11% and UVXY gained over 22%, both doing what they were designed to do, allow traders the ability to benefit from quick spikes in volatility.

VXX Table 1 Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com

Despite the great week for VXX and UVYX both funds are still much lower on the year.  This time last week, SVXY YTD performance was up over 50% now the fund’s return stands at just over 31%.

VXX SVXY UVXY Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com

As expected the leaders among the volatility indexes were related to broad based market indexes.  The VVIX move to over 110% is worth noting since that index has a relatively high levels for most of 2016 when compared to the historical range.  I did find it interesting that the only three indexes that lost value last week were currency related.

Vol Index Prices Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com

 Weekend Review – Volatility Indexes and ETPs – 9/11/2016 at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 8/21/2016

For the second week in a row the S&P 500 Index related volatility indexes hardly budged. Three out of four were lower with the longest dated, VXMT, up slightly on the week.

VXST VIX VXV VXMT Weekend Review – Volatility Indexes and ETPs – 8/21/2016 at vixtrade.com

 

We’ve ranted and raved in various forums about how VVIX has been holding up despite a lower VIX. It was kind of like the last holdout for higher equity market related volatility until this past week when it took a 12% dive.  This puts VVIX closer to the lower end of the historical range. I guess we will now focus on SKEW which is the sole index that remains relatively high.

VXX Table Weekend Review – Volatility Indexes and ETPs – 8/21/2016 at vixtrade.com

 

 

Since the equity market bottomed in February both VXX and UVXY have given back all the early 2016 gains and then some. As long as contango prevails in the VIX futures term structure and VIX remains low we will probably continue to see SVXY widen the 2016 lead on the long funds.

VXX SVXY UVXY Weekend Review – Volatility Indexes and ETPs – 8/21/2016 at vixtrade.com

 

I’ve started looking beyond broad based equity market volatility in this space.  This week the biggest moves to the upside came from the currency focused volatility indexes. If something is getting ready to upset the financial markets maybe it is macro in nature and the heightened risk is showing up in $BPVIX, $JYVIX, and $EUVIX.

Volatility Indexes Weekend Review – Volatility Indexes and ETPs – 8/21/2016 at vixtrade.com

 

Finally, on Friday the CBOE Options Institute held the first of a series of focus classes. We spent the day covering all things VIX and Volatility with a great group of students. I actually like these sorts of classes because I always seem to come away with new things to work on based on student questions or comments.

One student noted that he likes to buy SVXY on any pull back of about 20% and this prompted another student to ask if he’d ever considered selling out of the money puts on SVXY. We fired up LiveVol Pro and took a look at the skew of SVXY options. A condensed version of that chart appears below showing the skew for SVYX options expiring on September 16th.

SVXY Skew Weekend Review – Volatility Indexes and ETPs – 8/21/2016 at vixtrade.com

 

SVXY finished the week at 73.44 and we kicked around different 60 strike SVXY puts. The skew chart above shows the IV for September 16th SVXY 60 Puts is around 80%. With volatility like that priced into options we looked at the bid side for all the 60 strike puts expiring in September. With Weeklys there are actually five alternatives to consider.

SVXY 60 Put Bids Weekend Review – Volatility Indexes and ETPs – 8/21/2016 at vixtrade.com

 

The premiums ranged from 0.35 for the September 2nd puts to 2.05 for the September 30th contracts. Of course this is the equivalent of being short volatility since a volatility spike can take 20% out of SVXY in just a day, but if a trader would be a willing buyer of SVXY on a dip to 60.00 the opportunity to get paid to do so exists since the IV is so high for out of the money puts on this ETF.

 Weekend Review – Volatility Indexes and ETPs – 8/21/2016 at vixtrade.com >

New SPX Monday-Expiring Weeklys Options To Launch Next Month

CBOE recently announced that it plans to list S&P 500® Index (SPX) Monday-expiring WeeklysSM options, beginning August 15, pending regulatory approval.  With the expected introduction of SPX “Monday Weeklys,” CBOE will offer SPX options with Monday, Wednesday and Friday expirations.

SPX Weeklys are one of CBOE’s fastest-growing products, with volume in 2015 setting a 10th consecutive annual record. The chart below shows that SPX Wednesday-expiring weekly options set new volume records in every month since their introduction last February.

1 SPX Wed Weeklys per month thru June New SPX Monday Expiring Weeklys Options To Launch Next Month at vixtrade.com

COMMENTS BY CEO

The CBOE News Release noted that CBOE Holdings CEO Edward T. Tilly said –

“We are pleased to further expand our SPX product complex and build off the successful February launch of SPX Wednesday Weeklys with the introduction of SPX Weeklys with Monday expirations. Weeklys provide greater trading precision and with new Monday Weeklys, investors will be able to efficiently hedge over-the-weekend risks.  With three different expirations in our SPX Weeklys product line, investors will have even more opportunities and flexibility when trading the S&P 500.”   

 

FEATURES OF SPX MONDAY-EXPIRING WEEKLYS OPTIONS

Trading Hours — Extended and Regular Trading Hours currently in place for the existing SPX/SPXW options will be followed.

Ticker Symbol — SPX Monday-expiring Weeklys series will be available for trading under option symbol SPXW.

Expiration and Final Trading Day

  • SPX Monday-expiring Weeklys options are PM-settled.
  • The expiration date (usually a Monday) will be identified explicitly in the expiration date of the product. If the Monday of the week in which the options expire coincides with an Exchange holiday, the expiration date will be on the next business day (usually a Tuesday). The expiration date for each option is also the last trading day for that option.
  • SPX Monday-expiring Weeklys may expire on any Monday of the month, other than a Monday that coincides with an End-of-Month (“EOM”) expiration date.
  • Expiring SPX Monday-expiring Weeklys options will cease trading at 3:00 p.m. Central time on their last trading day. All non-expiring SPX Monday-expiring Weeklys options will continue to trade until 3:15 p.m. Central time.
  • SPX Monday-expiring Weeklys option series will not be included in the strip of option series that will be used to calculate the CBOE Volatility Index® (VIX®) spot value or the exercise or final settlement value of VIX Index options and futures.

 

FEATURES OF WEEKLYS OPTIONS

Contracts with weekly expirations allow investors to implement more targeted buying, selling, spreading or hedging strategies. In addition, futures and options with weekly expirations can help investors take advantage of breaking news or known economic events, such as earnings, monthly U.S. economic reports and Federal Reserve announcements.  Additional information on Weeklys options and futures can be found at www.cboe.com/Weeklys. CBOE pioneered short-term options trading in 2005 by introducing the first weekly expiring options contract.

 

JULY 11 SPX SKEW CHART

The SPX skew chart below shows implied volatilities at various strike prices and 12 upcoming expiration dates in July and August for SPX options. In general, the implied volatilities for out-of-the-money (OTM) SPX puts were higher than the implied volatilities for at-the-money SPX options. The OTM puts often are used for portfolio protection.

2 SPX skew Livevol July 11 New SPX Monday Expiring Weeklys Options To Launch Next Month at vixtrade.com

Beginning next month, after the introduction of the SPX Monday-expiring Weeklys options, there will be even more SPX expirations in near-term months.

MORE INFORMATION

The microsite for SPX Weeklys options is at www.cboe.com/SPXW.

For an overview of SPX Monday Weeklys options contract specifications and other operational details, refer to CBOE Regulatory Circular RG16-119 at –

http://www.cboe.com/aboutcboe/legal/crclreg.aspx

 New SPX Monday Expiring Weeklys Options To Launch Next Month at vixtrade.com >

Weekend Review – Volatility Indexes and ETPs – 5/8/2016

The S&P 500 was down 0.44% last week which places the index up only 0.65% for the year. Three out of the four S&P 500 focused volatility indexes were also lower last week, despite the drop in the S&P 500. I find the longer end of the curve holding up like it has for most of 2016 interesting as well as worrisome, at least if you are bullish on stocks.

VXST VIX VXV VXMT Curve Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com

In the ETP space VXX was down by 5.11% and UVXY lost a little over twice as much at VXX. SVXY put up a decent week gaining 4.75%. Bond volatility in the form of TYVIX was down by about 5%. VVIX remains relatively high at 88.86 which shows that despite the drop in VIX, there is still demand for VIX calls.

VXX Table Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com

The next chart is an apples to apples comparison of VXX, UVXY, and SVXY in 2016. After last week SVXY remains the only one of the three to remain in positive territory. UVXY was up as much as 100% this year before give it all back and then some.

VXX SVXY UVXY Perf Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com

UVXY closed at 15.27 on Friday, which for one trader, was an exceptional way to finish the week. About lunch time of Friday with UVXY at 16.43 a trader came in and sold 200 of the UVXY May 13th 16 Calls at 1.41 and then purchased 200 of the May 13th 19 Calls for 0.56 and a net credit of 0.85. The goal, is for UVXY to finish next week below 16, which is why I say they probably were pretty happy with what UVXY did between trade execution time and the close of business.

UVXY PO Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com

 Weekend Review – Volatility Indexes and ETPs – 5/8/2016 at vixtrade.com >