Five Volatility Market Lessons from 2016

To be successful in any field we all need to keep learning.  My job involves staying on top of all things index and volatility related which means I am always gaining new insights about the markets.  Looking back at 2016, VIX settled into lower levels after starting the year hitting the mid-20’s as the stock market sold off.  Despite the relatively tame behavior from VIX, there were some lessons to be learned last year.

Number 1 – Non-Fundamental Volatility Spikes

Before joining CBOE I was on the buy side with a variety of firms, mostly hedge funds.  I was fortunate to work for some wonderful mentors.  One of my first lessons was that when there’s government action that causes the markets to sell off it is often a buying opportunity.  This early lesson came before volatility was a tradeable asset, but it may be applied just as easily though selling volatility.  We are all aware of the volatility spike associated with Brexit as well as the overnight action that occurred with the election of Donald Trump to the Presidency.  The chart below shows the overnight action for the front month VIX futures and S&P 500 futures.



Number 2 – Currency Volatility is Not Dead

The table below shows the average of several volatility indexes in 2015 and 2016.  Note at the top of the list are volatility indexes based on expected price action for the British Pound (no surprise) and Japanese Yen.  I think singled digit volatility bores many traders, so with the sudden increase for IV on the Pound and Yen may result in those markets getting a bit more attention in 2016.



Before moving on, I did want to highlight the long-term history for BPVIX.  The chart below shows the high / low / average for BPVIX going back to 2007.  Note we’ve had higher levels of IV for the Pound in the past and not just in 2008.  It is very possible the higher IV may be here to stay for a while.



I know on the table above the EuroCurrency was at the low end as it was much higher in 2015.  I wanted to show that IV on EuroCurrency options can reach higher levels as well by showing a 10 year history below.



Number 3 – You Can Make Money Buying VXX

This one will probably get me some hate email, but that’s what the delete button is for.  VXX is more of a trading vehicle than a buy and hold asset.  Admittedly if you bought VXX on the last day of 2015, put it in your pocket and held it through last Friday you would be unhappy with your performance.  However, if you had been a perfect trader and exited at the 2016 high you would have turned a 48% profit.  Also, as highlighted on the chart below, an overnight position on Brexit night would have resulted in a one day return of about 24%.



Number 4 – SVXY Can Be A Better Buy Than SPX

A couple of years ago, I was speaking to a CFA chapter about buying SVXY when there is a sell-off in the stock market.  This was offered up as an alternative to buying the SPY ETF.  I got a question as to why a portfolio manager would choose to buy SVXY when they could just purchase SPY.  My response was if the stock market did not rebound, SVXY would most likely benefit from VIX and (more specifically) VIX futures moving lower.  I decided to see how SVXY did relative to SPY after the market sold off in February this year.  The chart with both benchmarked to 100 appears below.



I wrote the paragraph above and then created this chart.  I was taken aback by the performance of SVXY from February 11ththrough the end of the year.  Do note that SVXY was hit hard around Brexit, but otherwise put up pretty good numbers relative to the S&P 500 from the market bottom in 2016.

Number 5 – How Useful SPX ATM Volatility Can Be

CBOE now lists SPX options expiring three times a week.  Typically, there are options expiring on Monday, Wednesday and Friday, but that is dependent on holidays.  The chart below shows the IV of Friday expiring SPX options for the next nine weeks.  I highlighted a couple of events on the horizon, notably Inauguration Day and the January Payroll report.  Note the IV for SPX options bumps higher just after we get our 45th President (1/27 expiration) as those options expire that morning.




A Friendly Warning

Finally, a warning, fading volatility spikes has been a profitable method of using volatility as a trading asset for some time.  As noted above it has worked quite well for several years.  However, we have had periods of consistently elevated volatility in the past and are overdue for the next one.  I pulled out and updated my favorite long term equity market volatility chart to highlight this point.  Below is a chart of the CBOE S&P 100 Volatility Index (VXO) which has been tracking volatility using S&P 100 index option pricing for 31 years.  As I typically do for volatility index charts this represents the high low and average for each year.  Notice that even 2008 pales in comparison to what happened back in 1987.  I just want to leave everyone with the knowledge that selling volatility has worked, but make sure you are protected when the next big unknown event hits stock prices and quickly pushes volatility to higher levels.



Finally, thanks to all the readers we have acquired over the past five years or so.  Your feedback has made me a better instructor and market observer.  I hope to hear from more of you in 2017 at

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.


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).



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.  On Wednesday morning, the price of the VIX Nov. futures fell below 16, as a story at 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.”



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.



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.



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.



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.



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.



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, and read closely the related disclosures and disclaimers. Past performance is not predictive of future returns.


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

History Lesson – VIX at Year’s End

I have been banned from CBOE until next year due to having an abundance of unused days off.  However, I can still play with numbers and I decided to take a look at what VIX does on average between the last trading day before Christmas and the first trading day of the following year.  This first chart takes the average action from 1990 to 2015.  I found it pretty interesting that on average VIX actually rises (18.46 to 19.87), but upon further reflection the dampening impact of holidays getting out of the way may provide a boost to spot VIX.



Chart number two takes the January VIX futures price action from the last trading day before Christmas through the first day of the following year.  I used Jan VIX futures pricing from 2005 to 2015.  Behold!  It appears the futures actually drift lower over this time period.  In fact the average pricing drops from 18.90 to 18.37.



Finally, I decided to check on spot VIX over the 2005 to 2015 period relative to the Jan futures.  The uptrend in VIX held up over this different time period with an average rise from 16.79 to 17.79.



So despite the average gain in spot VIX, the futures actually have dropped on average through the holiday period.  If you are trading any VIX derivatives, the futures are always a key market to pay attention to and the story from Christmas to the new year is different in futures world than index world.

VIX Nov. Futures Shot Up by 55% on Election Night, but Later Retreated After Conciliatory Speech

NOV 9 – Four charts with big price moves over the past two days are presented in this blog.

On the Tuesday election night in the United States, the reported prices for the November futures on the CBOE Volatility Index® (VIX®) 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., an amazing rise of 55% over a 140-minute period (source: Bloomberg). Reported volume for VIX futures during non-U.S. trading hours was 235,141 contracts on June 24 (Brexit) and an estimated 263,663 contracts (a new all-time record) during the November 9 trading session (which technically began at 3:30 p.m. C.T. the day before.

On Wednesday morning, the price of the VIX Nov. futures fell below 16, as a story at 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.”



A Bloomberg news report noted that “The peso tumbled to a record as Donald Trump’s victory in U.S. presidential elections raised the prospect that two decades of Mexican economic integration with its northern neighbor will unravel.” Visit for CBOE information on managing currency risk.




The CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) rose from a low of 5.11 on Tuesday to a high of 5.64 mid-day Wednesday. Visit for information on TYVIX futures.



The VVIX Index is an important indicator for investors who are trying to gauge the implied volatility related to VIX options. The VVIX Index fell from a high of 114.56 on Tuesday to a low of 99.51 mid-day Wednesday.



To learn more about managing your portfolio with index options, please visit the Strategies and Education tabs at the CBOE website. Information and price charts on 30 volatility indexes is at

Qualified institutional investors also are welcome to register at 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
  • 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)

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 for values and prices changes for more than two dozen more volatility indexes.


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.




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).



 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 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.

Volatility History Lesson – The 2012 Election

I’ve been getting lots of questions with respect to how volatility acts around US elections.  We don’t have a lot of history to work with, but we do have data on how the four volatility indexes based on SPX option trading did four years ago.  I did a little digging and reconstructed the VXST – VIX – VXV – VXMT curves from the Friday before and Friday after the 2012 election.



The pre-election curve was slightly inverted with VXST at a premium to spot VIX.   The week of the election VXST dropped 0.01 while the rest of the curve moved higher.  This was a result of the S&P 500 dropping about 2.5% during the week of the election.  Most likely the shift of risk from the election to a drop in the stock market kept VXST basically unchanged.  Short dated volatility was most reactionary to the 2012 election and is behaving the same way before the 2016 election, although at more of an extreme this time around.   Short term volatility will most likely fall back in line with the rest of the curve after the election is past us, however, the levels of VIX, VXV, and VXMT will be determined by the outcome of the election this coming week.

The Election and Sector Volatility

So, last week I looked at the implied volatility of various option markets that expired just before and just after next week’s election.  You can read all about that here.  Of course, as we all know, things changed a bit last Friday.  When things change, I start running numbers.  First I updated the table from last week where the IV for Nov 4th and Nov 11th options were compared for a variety of sectors, indexes, and one country fund.


The top part of the table above compares the implied volatility for the S&P 500 (SPX), Nasdaq-100 (NDX), and Russell 2000 (RUT).  The implied volatility for Weeklys expiring just after the election is at a 33% premium for SPX options, 24% for the RUT, and about 21% for NDX.

Note that EWW implied volatility is 77% higher for the November 11th options when compared to the November 4th contracts.  This was the highest of the fund premiums last week as well.  The second and third funds on this table represent healthcare and those funds were in the same place last week.

I also looked at the change in November 11th volatility between the close on 10/25 and the close yesterday (10/31).  Those changes appear below.


The broad-based index volatility rose between 32% and 36% which was surprisingly consistent.  For the sector funds, health care volatility rallied more than EWW volatility.  I could understand this with respect to XLV, since November 11th IV was less than half of that for EWW last week, but Biotech volatility was already higher than EWW so the 60% move is nothing short of impressive.

We have (hopefully) just over a week until this election is behind us.  I’m going to closely watch market volatility, both broad based index and sector fund, to see where the market sees post-election risk and continue to report back in this space.

Weekend Review – VIX Futures and Options – 10/30/2016

VIX had a pretty stellar week, aided by the new on Friday, to finish over 20% higher. Spot VIX may be buying into a new scandal, but the futures did not.  The curve is as flat as it has been in months which tells me traders expect this move in VIX to be short lived.



We are all aware that VIX made a little move on Friday as new of a new chapter in the Clinton email saga commenced.  As the week came to an end on trader took advantage of a rise in VIX and the December futures contract to place a pretty basic trade.  With VIX at 16.19 and the December contract at 17.05 there was a buyer of just over 4,000 VIX Dec 16 Puts for 1.45.



I know that’s short of exciting, but the December futures always are a bit of an anomaly based on holiday calendar.  We have Christmas, New Year’s, and MLK holidays between December VIX settlement and the S&P 500 options that determine the settlement price.  It may be a trader has been waiting to pounce and purchase Dec puts.  Friday’s new reaction may have given them that opportunity.

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.



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.



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.




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.


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

OCT. 28 – On Friday afternoon a news story at 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. …”


The CBOE VIX of VIX Index (VVIX) is an indicator of the expected volatility of the 30-day forward price of the VIX. 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.



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.


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.


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.


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. …”



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.


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