This Week In VIX Options and ETNs

This past week the S&P 500 rose almost 2% on the week and in a strange twist VIX was higher on the week as well.  Friday’s action contributed to a corresponding rise for VIX on the week as it appeared portfolio managers may have been in the market for portfolio protection through buying SPX puts.  This sort of demand could be responsible for a jump in VIX.  What was also interesting in the last week and especially on Friday was the increase for VVIX as well.  VVIX was up 10 points on the week, gaining 5 points on Friday.

Although VIX gained on the week, with the exception of the September futures contract, VIX futures lost ground last week.  That combined with the continued slope of near month prices put pressure on VXX along with the other long volatility exchange traded products.  VXX was down 2.44% while VXZ dropped a staggering 7.67%.  This relative under performance of VXZ relative to VXX would normally be associated with a spike on the short end of the VIX curve or possibly from the curve going inverted.  However this drop in VXZ relative to VXX was due more to the farther dated VIX futures dropping more than the near dated futures.

The hedged and short volatility exchange traded products were both higher on the week.  Emerging markets were higher on the week which translated to a higher EEMV and the US stock market strength was able to push USMV slightly higher on the week.

VIX Option activity started to shift focus to October as September expiration is creeping up on us.  Rolling activity and new positions in October expirations and beyond on Tuesday pushed VIX option volume to a record day of 1.22 million contracts.  Dec 24 Calls, Nov 18 Puts, Sep 20 Puts, and Oct 26 Calls all traded over 100,000 contracts individually that day.  A specific trade that got some attention this past week was a large buyer of VIX Oct 30 Calls and subsequent seller of Oct 35 Calls.  This spread was done for anywhere between a 0.10 and 0.16 and could pay off quite nicely if a double in VIX occurs between now and October expiration.

Record VIX Futures Volume

Earlier this week (Tuesday) we witnessed record volume in VIX Options and now the VIX Futures trading at the CBOE Futures Exchange have followed suit. On Thursday the CFE experience a record volume day of its own with strong volume in the VIX Futures arena. At the CFE just over 190,000 VIX Futures were traded shattering the previous record of just under 160,000 contracts which occurred back on June 18, 2012. Average VIX Futures volume for 2012 is running at slightly over 83,000 contracts a day. Currently, there are contracts listed that expire on a monthly basis from September 2012 through May 2013. A month by month volume breakdown follows –

September 2012 63251
October 2012 62417
November 2012 23819
December 2012 13236
January 2013 10100
February 2013 8475
March 2013 6598
April 2013 1434
May 2013 751

What is a bit amazing is this record volume occurred on a day where VIX was under pressure. VIX was down 1.75 to 14.05 and the front month September contract was down 0.90 closing at 14.90 on the day.
The chart below compares the closing VIX and VIX Futures prices from Wednesday (9/12) and Thursday (9/13) this week.


Record VIX Option Volume

Yesterday – September 11, 2012 was a record day for VIX option trading with approximately 1.22 million contracts traded. This surpasses the previous record of 1.17 million contracts back on August 5, 2011. This also marks only the third time that VIX option volume has surpassed 1 million contracts. The other day this occurred was last Friday – September 7, 2012. Average daily volume in VIX Index options has been around 423,000 contracts in 2012 up from the average daily volume of 391,000 in 2011.

A breakdown of the most active contracts from this record day appears with estimated volume is below –

Dec 24.00 Calls – 132,693
Nov 18.00 Puts – 121,220
Sep 20.00 Puts – 106,675
Oct 26.00 Calls – 104,890
Oct 28.00 Calls – 57,166
Oct 23.00 Calls – 45,050
Oct 35.00 Calls – 42,866
Nov 32.50 Calls – 40,251
Nov 28.00 Calls – 36,500
Sep 17.00 Puts – 31,144

Note the majority of actively traded options on this list are calls. The estimated volume breakdown on the day was 392,015 puts to 829,388 call options for a VIX put call ratio of 0.47. The average VIX put/call ratio this year has been around 0.63 so this high volume day was based on more calls relative to the number of puts trading on the day.

All CBOE Put/Call Ratio data is available at –

Q&A on VIX from CBOE Webcast

Yesterday I hosted a webcast for CBOE on trading exchange traded products that base their performance on VIX strategies.  During the webcast Barb and I fielded several very good questions regarding VIX.  A few highlights are below –

Can you comment on the recent relatively low level of VIX?
VIX has been under 20 and at low levels for a few weeks based on a couple of factors.  First, there is a historical inverse relationship between VIX and the S&P 500.  As the S&P 500 is making post 2008 crisis highs, VIX is under a bit of pressure.  Also, remember VIX is a measure of implied volatility.  Recent market volatility as measured by price changes in the S&P 500 has been in the single digits.  This lack of realized volatility in the overall market has resulted in a little pressure on VIX as well.

Why is VXX trading at 9.93 when the September VIX Future is trading at 16.45 and October VIX Future at 18.30 (prices were mid-day on September 11)?
The performance of VXX is based on an index that tracks a portfolio holding the front two month VIX futures contracts.  However, the absolute price of VXX has nothing to do with the prices of the two futures contracts that comprise the underlying index.  Much like the S&P 500 index at 1430 does not have a direct relationship to the prices of the stocks that comprise the S&P 500.

What is the difference between short-term and mid-term VIX exchange traded products?
The exchange traded products that focus on short-term VIX futures are comprised of futures that expire in the next two months (currently September and October).  VXX, VIXY, and VIIX would qualify as short-term.  Mid-term exchange traded products focus on the fourth through seventh month VIX futures (currently December, January, February, and March).  VXZ, VIIZ, and VIXM would be common examples of mid-term exchange traded products.

Could you give an overview of VVIX since we are talking about VIX trading?
The CBOE VVIX Index is an indicator of the expected volatility of the VIX.  This is similar to VIX being an indicator of the expected volatility of the S&P 500.  VVIX is also referred to as the VIX of VIX.  The historic range has been mostly in the 80 to 120 range and along with the complacency seen in VIX, VVIX has been closer to 80 than 120 as of late.

A rebroadcast of the webcast on trading VIX Exchange Traded Products will be available in a couple of days and may be found at the following link –

ETF Trends Article – VIX ETFs: Get Ready for UVXY Reverse Split

John Spence, Web Editor at ETF Trends, states that “ProShares Ultra VIX Short-Term Futures ETF (NYSEArca: UVXY) will reverse split shares 1-for-10 after yesterday’s closing bell.”  Click here to access the full article.

Technical Outlook: VIX Showing Complacency. Really?

We find it amazing how many times the markets, the media, and many, many analysts are always waiting for that next crucial data point. And when that “important” data point or speech finally arrives, it turns out so many times to be a non-event. When the news is bad, but the market rallies, the spinsters find some reason for the surprising rally. When the news is good and the market falls, well you know. As we have said many times, price leads the news, and we continue to believe that the stock market is poised for a large move higher during the next couple of months. Over the past couple of weeks, the major stock indices as well as many individual stocks have paused or pulled back very quietly, and it appears to us that they are setting up for the next leg higher. Quiet, listless markets are not signaling a market top, but rather a refueling before the next fireworks begin.

So far, the S&P 500 has seen a very minor pullback to its 13-day exponential moving average. During fluid moves higher, this is many times all you get as far as a decline. In addition, the “500” has only retraced a minor 23.6% of the rally since July 24, which is the minimum pullback in an uptrend. On the intraday (30- and 60-minute) charts, it appears that the index completed a small three-wave decline, and may be set to lift off. On the daily chart, we have only seen one wave down, which, in our view, is reminiscent of many pullbacks during the third wave of an advance. The key upside chart resistance for the near term is the 1,420 region, and we believe a strong break above this area opens up the possibility of a rally to 1,500+ over the next two months, and toward all-time high territory in the first quarter of 2013.

The VIX, a measure of market expectations of near-term volatility based on option prices of the S&P 500, is closing in on a sell signal, which equates to a buy signal on the stock market. A sell signal on the VIX consists of three steps, with the first and second being a close outside the standard Bollinger Bands, and then a close back inside the bands. The third step is a lower close on the VIX than the close of the day that the VIX first finished back inside the bands. If things stay as they are, the first two steps will have been tripped.

We get quite amused when we read and hear comments on the VIX, as many times they are just flat-out wrong. There are many saying that the recent VIX readings of near 15% (currently 17.4%) are signaling complacency. Well, what does this mean? The options market is saying that there is a 2/3 chance that the S&P 500 will either rise or fall by 15% over the next year. This equates to a rise to 1,621 or a decline to about 1,200. That range of price expectations doesn’t really seem complacent to us. Furthermore, we think the analysts who are calling the recent readings complacent are not really looking at enough history, but selectively recalling the three spikes in the VIX that have occurred over the past four years. So yes, the current VIX is of course much lower than the levels during the 2008/2009 bear market, and below the levels during the pullback in 2010 and the major correction in 2011. But it is still a lot higher then it was during parts of the 1990s bull market as well as the 2003 to 2007 bull market. During those bull runs, the VIX dropped to 10 and stayed low for considerable periods of time. Some of the best gains during recent bull markets have come with a VIX reading below 15. So, if we continue to trade in at least a cyclical bull market and perhaps transition to a secular bull market as we have projected, we actually think the VIX could be way overvalued, and showing too much fear.



This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P Capital IQ nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 2012 by Standard & Poor’s Financial Services LLC. All rights reserved. “S&P”, “S&P 500”, and “Standard & Poor’s” are registered trademarks of The McGraw-Hill Companies, Inc. All required disclosures and analyst certification appear on the last three pages of this report

Barron’s News Story — Fund Based on VXTH Index

An August 28th news article at stated —

“First Trust To Launch VIX ‘Tail Hedge’ Fund.  The rise of volatility trading products continues. First Trust Advisors is set to launch what it’s calling the First Trust CBOE S&P 500 VIX Tail Hedge Fund on Thursday … The fund will trade under the ticker VIXH. Here’s the link to the prospectus

This CBOE blog is for informational purposes, and CBOE and S&P Dow Jones Indices do not do solicitations or recommendations for exchange-traded funds.

Please read the fund’s prospectus which notes that “The Fund seeks investment results that correspond generally to the price and yield, before the Fund’s fees and expenses, of an equity index called the CBOE VIX Tail Hedge Index.”


The VXTH Index tracks the performance of a hypothetical portfolio that –

  • Buys and holds the performance of the S&P 500® index (the total return index, with dividends reinvested), and
  • Buys one-month 30-delta call options on the CBOE Volatility Index® (VIX)®. New VIX calls are purchased monthly, a procedure known as the “roll.” The weight of the VIX calls in the portfolio varies at each roll and depends on the forward value of VIX, an indicator for the perceived probability of a “swan event”.
  • The weights are determined according to the schedule below and the weights applied at a particular roll date can be seen by opening the VXTH Monthly Roll Spreadsheet at


Key Tools for Hedging and Tail Risk Management is a paper by Asset Consulting Group (February 2012).  Key highlights from the paper include:

  • Tail Risk Over 25 Years: Since mid-1986 the worst monthly declines for select indexes include: down 28.2% for the S&P GSCI Index, down 21.5% for S&P 500, down 20.2% for MSCI EAFE, and a decline of only 8.6% for the CLL Index (Exhibit B).
  • Risk and Diversification in 2008: Changes for indexes in 2008 – S&P 500® down 37.0%; two indexes with options and stocks – CLL Index down 23.6% and VXTH Index down 19.3 (Exhibit A).
  • Lower Volatility: The CLL has incurred about 70% of the volatility of the S&P 500 over the last 26 years. Select portfolios with the VXTH had less volatility than the S&P 500 over the last 70 months (Exhibits C, F, and O).

More papers and benchmark index information are available at

Two of the Exhibits from the paper are below.


Volatility indexes

CBOE Volatility Index® (VIX®) (with put-call ratios, CFE, charts, bibliography, etc.)

CBOE Risk Management Conference in Ireland – Sept. 5 – 7 2012


Asset Consulting Group (ACG) is an investment consulting firm which provides a full scope of investment advisory services to a select group of clients. The Chicago Board Options Exchange® (CBOE®) provided financial support for the ACG paper. The CBOE S&P 500 indices are designed to represent proposed hypothetical strategies. The actual performance of investment vehicles such as mutual funds can have significant differences from the performance of the hypothetical indices. Like many passive indices, the indices do not take into account significant factors such as transaction costs and taxes. Investors attempting to replicate the indices should discuss with their advisors possible timing and liquidity issues.  Past performance does not guarantee future results. Standard & Poor’s®, S&P®, and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC and are licensed for use by the CBOE. CBOE and Chicago Board Options Exchange are registered trademarks of the CBOE, and the CBOE indices are servicemarks of the CBOE. CBOE calculates and disseminates the indices. The methodology of the indices are owned by CBOE and may be covered by one or more patents or pending patent applications. The information contained in this report is based on information obtained by ACG from sources that are believed to be reliable. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Low-cost Protection — One Year After VIX Peak

AUG. 9, 2012 — A year ago, on August 8, 2011, the CBOE Volatility Index® (VIX®) closed at 48.00, its highest closing value since March 9, 2009.

Yesterday, on August 8, 2012, the VIX closed at 15.32 (a level that was 68% lower than the year-earlier level).

Yesterday Reuters published an article is entitled “Time may be ripe to buy low-cost option protection.” The article noted that now could be a good time for investors to explore the possibility of buying SPX puts or VIX calls for protection.


The Reuters article noted that —

“ …The summer months are often a slower period, when many traders head for the beaches and volatility typically wanes before the historically volatile months of September and October.   This is often reflected in the CBOE Volatility Index or VIX … ‘Now is a good time to buy downside puts on the S&P 500 index because they can increase in value if the market falls and if volatility moves up,’ said options strategist Frederic Ruffy. …”

According to Bloomberg, with the S&P 500 Index at around 1400 on the morning of August 9, 2012, for the SPX options expiring in 44 days on Sept. 22, here are rough estimates of implied volatilities –

  • around 18 i.v. for the SPX 1300 puts,
  • around 16 i.v. for the SPX 1350 puts,
  • around 14 i.v. for the SPX 1400 puts.

Out-of-the money SPX puts often have higher implied volatilities than at-the-money SPX puts because of the SPX skew and demand by investors for portfolio protection.

Here is a 13-month chart for the VIX Index, which can provide some clues to the price of SPX options.


The Reuters article also noted —

“…’A similar trade would be to buy VIX call options which are also cheap right now,’ said Bill Luby, a private investor who writes the “VIX and More” blog in San Francisco. ‘VIX call options will increase in value if the market has a sharp downward correction or investors view there is more risk on the horizon.’ …”

One tool that can be helpful to VIX options investors is the CBOE VIX of VIX Index (VVIX). The VVIX Index is an indicator of the expected volatility of the 30-day forward price of the VIX®.

Here is a chart showing the past 13 months of VVIX daily closes — 


CBOE offers options on four volatility indexes —

VIX – CBOE Volatility Index® (VIX®) Options
GVZ – CBOE Gold ETF Volatility Index Options
VXEEM – CBOE Emerging Markets ETF Volatility Index Options
VXEWZ – CBOE Brazil ETF Volatility Index Options

The CFE offers futures on a number of volatility indexes, including VIX, OVX, NDX, GVZ, VXEEM, and VXEWZ.



Apple Earnings Fall Short, as VXAPL Index Closes at 34.34

Tuesday, July 24  –  Apple, Inc. announced its quarterly earnings today.  Bloomberg news noted —

“Apple Inc. (AAPL)’s profit and sales fell short of analysts’ projections for only the second time since 2003 as customers held off on iPhone purchases while waiting for a new model to be introduced later in the year.  …   The iPhone is Apple’s biggest source of revenue. ‘Every quarter that Apple isn’t launching a new iPhone it’s a transition quarter,’ said Brian Marshall, an analyst at ISI Group. “That’s the key product that matters.”  Apple, the world’s largest company by market value, fell in extended trading. …”


Investors who use AAPL options to manage risk and enhance income can check intraday updates of the CBOE Equity VIX on Apple (VXAPL) to gain a better understanding of changes in AAPL implied volatility. Th eVXAPL closed at 34.34 today.



In the chart below, note that the spread between VXAPL and VIX indexes can vary substantially.  For example, on Nov. 3, 2011, the VIX was slightly higher than the VXAPL Index, while yesterday, the VXAPL closed at 34.82 and VIX closed at 18.62.  The average spread between the VXAPL Index and VIX Index has been about 10.3 points.   VXAPL and VIX


AAPL’s stock price reached daily high closing prices of 144.19 on March 22, 2000, and 636.23 on April 9, 2012.








For more information about the VXAPL Index, please visit

VIX Up 12.6%, as 20 Vol Indexes Rose Today

Monday, July 23 — While many stock indexes plunged today, twenty of CBOE’s volatility indexes rose.  Visit to see a list of indexes with updated delayed quotes.

Here is a list of percentage changes for some volatility indexes on July 23 –

  • 12.6%       VIX® – CBOE Volatility Index®
  • 6.3%         VVIX – CBOE VIX of VIX Index
  • 5.1%         OVX – CBOE Crude Oil ETF Volatility Index
  • 8.0%         GVZ – CBOE Gold ETF Volatility Index
  • 12.9%       VXEEM  – CBOE Emerging Markets ETF Volatility Index
  • 5.6%         VXSLV – CBOE Silver ETF Volatility Index
  • 10.4%       VXFXI – CBOE China ETF Volatility Index
  • 12.3%       VXEWZ – CBOE Brazil ETF Volatility Index
  • 3.7%         VXAPL – CBOE Equity VIX® on Apple
  • 8.2%         VXGOG – CBOE Equity VIX® on Google

Today’s % changes for two of S&P’s VIX futures indexes were —

  • 8.3%         S&P 500 VIX Short-term Futures Index (TR)
  • 3.9%         S&P 500 VIX Mid-term Futures Index (TR)


In a table at on July 23rd with delayed quotes, the VIX spot index rose 2.35 to 18.62, while the VIX Aug. futures rose 1.63 to 20.78. 


Below is a list of the 11 trading days over the past year (July 23, 2011 – July 23, 2012) on which the VIX Index had daily moves of more than 15% up or down.   Interestingly, the VIX had 10 up-moves of more than 15%, but only one down-move of over 15%.  Delayed quotes for VIX spot and futures prices are at

  • 8-Aug-2011         50.0%
  • 4-Aug-2011         35.4%
  • 18-Aug-2011       35.1%
  • 9-Nov-2011         31.6%
  • 10-Aug-2011       22.6%
  • 31-Oct-2011        22.1%
  • 17-Oct-2011        18.2%
  • 21-Jun-2012       16.5%
  • 1-Nov-2011         16.1%
  • 6-Mar-2012          15.6%
  • 9-Aug-2011         -27.0%


  • Volatility indexes
  • CBOE Volatility Index® (VIX®) (with put-call ratios, CFE, charts, bibliography, etc.)
  • VIX Strategies
  • Papers on Income Enhancement and Tail Risk Management
  • CBOE Risk Management Conference in Ireland – Sept. 5 – 7 2012




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