Volatility Monitor

64 total posts

Right Back Where We Started…

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posted by CAPIS on 10/26/2015 at 8:06 am
by CAPIS on 10/26/2015

SPX futures are slightly lower by 1.5 points to 2064.50. While China cut interest rates and relaxed reserve requirements on Friday, the European bourses are lower today easing from a two-month high set Friday. Gold is modestly higher while crude oil is modestly lower. The spot VIX ended flat on Friday, 14.46. The VIX futures are all higher by a dime on average in a fairly parallel shift. All VIX futures are under the 20 handle presently. Nobel Prize winner Paul Samuelson once said, “The stock market has forecast nine of the last five recessions.” I think that quote is a perfect fit for the VIX if anything. Since the late August correction that saw the VIX explode to over 50 intraday, the “fear gauge” is now back to where we started, sub 15 (graph below). In concert, the S&P 500 has retraced almost all of its dramatic drop as well. A VIX over 50 hadn’t been seen since early 2009… and the equity market has essentially shrugged it off with a dramatic drop in implied volatility to pre-correction levels. Derivatives strategist Jim Strugger made the observation over the weekend that “implied volatility has led the way lower”. Typically, realized…

SPX futures are slightly lower by 1.5 points to 2064.50. While China cut interest rates and relaxed reserve requirements on Friday, the European bourses are lower today easing from a two-month high set Friday. Gold is modestly higher while crude oil is modestly lower. The spot VIX ended flat on Friday, 14.46. The VIX futures are all higher by a dime on average in a fairly parallel shift. All VIX futures are under the 20 handle presently. Nobel Prize winner Paul Samuelson once said, “The stock market has forecast nine of the last five recessions.” I think that quote is a perfect fit for the VIX if anything. Since the late August correction that saw the VIX explode to over 50 intraday, the “fear gauge” is now back to where we started, sub 15 (graph below). In concert, the S&P 500 has retraced almost all of its dramatic drop as well. A VIX over 50 hadn’t been seen since early 2009… and the equity market has essentially shrugged it off with a dramatic drop in implied volatility to pre-correction levels. Derivatives strategist Jim Strugger made the observation over the weekend that “implied volatility has led the way lower”. Typically, realized…

CBOE Lists Russell 1000 Products

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posted by CAPIS on 10/21/2015 at 8:31 am
by CAPIS on 10/21/2015

SPX futures are up 9 points to 2029.50 this morning as both GM and Boeing beat estimates. China stocks post their biggest losses in a month. The US Attorney’s office in New York has taken a keen interest in Draft Kings of the fantasy sports (gambling) business. I figured that this would only be a matter of time. The spot VIX finished 15.75 yesterday. The VIX futures are all modestly lower on the positive equity tone this morning. New cash-settled European style options on several Russell 1000 indexes launched on yesterday on the CBOE. The Russell 1000 Index (RUI), Russell 1000 Growth Index (RLG), and Russell 1000 Value Index (RLV) all began trading yesterday. Well, let me correct that,.. began disseminating quotes yesterday. Perhaps my market feed is off, but I don’t see one single trade on any contract. I guess we shouldn’t be too surprised, given that the entire open interest in the Russell 1000 futures is 8,056 contracts, which will be the underlying hedge for the options. The products (futures and options) were designed by the CBOE just like their proprietary S&P 500 Index product. The options contracts have a $100 multiplier and large notional sizes which are…

SPX futures are up 9 points to 2029.50 this morning as both GM and Boeing beat estimates. China stocks post their biggest losses in a month. The US Attorney’s office in New York has taken a keen interest in Draft Kings of the fantasy sports (gambling) business. I figured that this would only be a matter of time. The spot VIX finished 15.75 yesterday. The VIX futures are all modestly lower on the positive equity tone this morning. New cash-settled European style options on several Russell 1000 indexes launched on yesterday on the CBOE. The Russell 1000 Index (RUI), Russell 1000 Growth Index (RLG), and Russell 1000 Value Index (RLV) all began trading yesterday. Well, let me correct that,.. began disseminating quotes yesterday. Perhaps my market feed is off, but I don’t see one single trade on any contract. I guess we shouldn’t be too surprised, given that the entire open interest in the Russell 1000 futures is 8,056 contracts, which will be the underlying hedge for the options. The products (futures and options) were designed by the CBOE just like their proprietary S&P 500 Index product. The options contracts have a $100 multiplier and large notional sizes which are…

VIX Futures – Nearly Back Where We Started

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posted by CAPIS on 10/19/2015 at 8:14 am
by CAPIS on 10/19/2015

SPX futures are off 8 points to 2017.50 this morning. More than one-fifth of the S&P 500 reports earnings this week. Among which are Microsoft, Amazon, and (formerly Google) Alphabet. Crude and gold are both lower this morning. The spot VIX finished 15.05 last week. The VIX futures are modestly higher this morning. All VIX futures, however, are now under the 20 handle. The VIX futures are now convincingly back into the familiar contango structure. As you can see in the graph below, the past week has brought a slightly steeper slope (orange vs green lines). In fact, the mean ratio between the generic 2nd month VIX future and the front month future has been 1.06 over the last five years. That ratio currently sits at 1.05. Even the ratio between the generic 8th month VIX future to the front month sits right about average (1.2 v 1.26). It has taken roughly two months since the August 24th jump in volatility for the VIX futures to regain its typical contango structure. Are we back to the very ‘low vol’ normal that has been prevalent for the past several years? Almost. It should be noted that the term structure for the…

SPX futures are off 8 points to 2017.50 this morning. More than one-fifth of the S&P 500 reports earnings this week. Among which are Microsoft, Amazon, and (formerly Google) Alphabet. Crude and gold are both lower this morning. The spot VIX finished 15.05 last week. The VIX futures are modestly higher this morning. All VIX futures, however, are now under the 20 handle. The VIX futures are now convincingly back into the familiar contango structure. As you can see in the graph below, the past week has brought a slightly steeper slope (orange vs green lines). In fact, the mean ratio between the generic 2nd month VIX future and the front month future has been 1.06 over the last five years. That ratio currently sits at 1.05. Even the ratio between the generic 8th month VIX future to the front month sits right about average (1.2 v 1.26). It has taken roughly two months since the August 24th jump in volatility for the VIX futures to regain its typical contango structure. Are we back to the very ‘low vol’ normal that has been prevalent for the past several years? Almost. It should be noted that the term structure for the…

VIX Weekly Options & CBOE SKEW Index

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posted by CAPIS on 10/14/2015 at 8:20 am
by CAPIS on 10/14/2015

SPX futures are off a point to 1993 this morning. Wholesale Prices in the US declined by the most since the start of the year. Retail Sales came in lower than expected. Gold has moved to a three month high while crude is looking for direction with investors eyeing oversupply conditions. The spot VIX finished 17.67 yesterday. The VIX futures are all higher this morning with the slightly negative equity tone. Last week the CBOE (10/8/15) added VIX weekly options to the massively popular VIX product. The first day logged only 4,300 contracts traded but by the middle of the second day that number had already moved above 40,000 (CBOE). The contracts are tied to the weekly VIX futures that were just recently added as well. You will now get a fuller picture of SPX expected 1-month volatility by pulling up the VIX futures contract table on Bloomberg under “VIX Index CT [GO}”. Under the CBOE’s headline “More Precision and Responsiveness”, you will now get a more defined picture of 1-month expected volatility (n-days in the future) in SPX by seeing both standard and weekly VIX futures and the resulting term structure (graph below). Similarly, the newly introduced VIX weekly…

SPX futures are off a point to 1993 this morning. Wholesale Prices in the US declined by the most since the start of the year. Retail Sales came in lower than expected. Gold has moved to a three month high while crude is looking for direction with investors eyeing oversupply conditions. The spot VIX finished 17.67 yesterday. The VIX futures are all higher this morning with the slightly negative equity tone. Last week the CBOE (10/8/15) added VIX weekly options to the massively popular VIX product. The first day logged only 4,300 contracts traded but by the middle of the second day that number had already moved above 40,000 (CBOE). The contracts are tied to the weekly VIX futures that were just recently added as well. You will now get a fuller picture of SPX expected 1-month volatility by pulling up the VIX futures contract table on Bloomberg under “VIX Index CT [GO}”. Under the CBOE’s headline “More Precision and Responsiveness”, you will now get a more defined picture of 1-month expected volatility (n-days in the future) in SPX by seeing both standard and weekly VIX futures and the resulting term structure (graph below). Similarly, the newly introduced VIX weekly…

VIX Drops for the Ninth Day in a Row

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posted by CAPIS on 10/12/2015 at 8:11 am
by CAPIS on 10/12/2015

SPX futures are flat this morning as 35 companies in the S&P 500 are due to report this week. Fed Bank of Atlanta President Dennis Lockhart repeated his view that the first interest rate increase since 2006 will occur by the end of the year (Bloomberg). Fed Funds futures are pricing in a 39% chance of a rate band increase by December and a 62% chance by March/’16. The spot VIX closed 17.08 on Friday as the market was basically flat. The VIX futures are mixed and relatively flat this morning, waiting for direction. The S&P 500 Index had its best week since last December adding 3.3%. In fact, since the August selloff, the S&P has rallied 7.9%. The sell-off moved 1-month SPX realized to 33.8% and the 1-month IV to 32%. Since then however, IV has halved to 14.8% while realized vol has dropped to 18.5%. By last Friday, the VIX extended its streak of declines to nine days in a row. It’s longest since 2011. The VIX futures have moved from a nearly flat term structure back into the all too familiar contango structure over the past week (graph below). On the morning of August 24, you may…

SPX futures are flat this morning as 35 companies in the S&P 500 are due to report this week. Fed Bank of Atlanta President Dennis Lockhart repeated his view that the first interest rate increase since 2006 will occur by the end of the year (Bloomberg). Fed Funds futures are pricing in a 39% chance of a rate band increase by December and a 62% chance by March/’16. The spot VIX closed 17.08 on Friday as the market was basically flat. The VIX futures are mixed and relatively flat this morning, waiting for direction. The S&P 500 Index had its best week since last December adding 3.3%. In fact, since the August selloff, the S&P has rallied 7.9%. The sell-off moved 1-month SPX realized to 33.8% and the 1-month IV to 32%. Since then however, IV has halved to 14.8% while realized vol has dropped to 18.5%. By last Friday, the VIX extended its streak of declines to nine days in a row. It’s longest since 2011. The VIX futures have moved from a nearly flat term structure back into the all too familiar contango structure over the past week (graph below). On the morning of August 24, you may…

BlackRock Calls for Halting the Stock Market to Avoid Volatility

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posted by CAPIS on 10/08/2015 at 8:26 am
by CAPIS on 10/08/2015

SPX futures are off 8 points to 1979.25 this morning as initial jobless claims tumbled to a 42 year low even as job cuts have reached its highest total since 2009. The IMF downgraded its economic outlook on Wednesday, citing concern about how emerging markets will fare asa US rates increase. The cash VIX finished 18.40 yesterday. The VIX futures are all modestly higher this morning maintaining its fairly flat term structure. Soo… TradersMagazine.com had a piece this morning titled BlackRock Calls for Halting the Stock Market to Avoid Volatility. Naturally that title is going to catch my eye. Apparently the fund company is proposing a three part cure: “the whole $23 trillion market should automatically come to a halt if a significant number of shares stop trading; venues should use the same triggers to suspend trading throughout the day; and rules on when to pause securities should apply equally to shares, listed options, futures, and exchange-traded products.” Driven by the recent volatility on August 24, rather than a few names halting… the whole market would halt. An attempt like this to “avoid volatility” would upset one faction of the market to be sure… the net long contract options traders.…

SPX futures are off 8 points to 1979.25 this morning as initial jobless claims tumbled to a 42 year low even as job cuts have reached its highest total since 2009. The IMF downgraded its economic outlook on Wednesday, citing concern about how emerging markets will fare asa US rates increase. The cash VIX finished 18.40 yesterday. The VIX futures are all modestly higher this morning maintaining its fairly flat term structure. Soo… TradersMagazine.com had a piece this morning titled BlackRock Calls for Halting the Stock Market to Avoid Volatility. Naturally that title is going to catch my eye. Apparently the fund company is proposing a three part cure: “the whole $23 trillion market should automatically come to a halt if a significant number of shares stop trading; venues should use the same triggers to suspend trading throughout the day; and rules on when to pause securities should apply equally to shares, listed options, futures, and exchange-traded products.” Driven by the recent volatility on August 24, rather than a few names halting… the whole market would halt. An attempt like this to “avoid volatility” would upset one faction of the market to be sure… the net long contract options traders.…

VIX Closed Below 20 For First Time Since Late August

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posted by CAPIS on 10/06/2015 at 8:15 am
by CAPIS on 10/06/2015

SPX futures are modestly lower, down 2 points to 1972.75 this morning. The trade deficit in the US widened in August by the most in five months. The OPEC secretary general said that oil prices are set to rebound as cuts in global oil investment have tightened supplies. The spot VIX finished 19.54 yesterday as the market rallied 1.8%. The VIX futures are all modestly higher and are all within 1 point of each other. The spot VIX finally closed below the 20 handle for the first time since late August (graph below). It did manage to trade below 20 intraday on September 17, however. This is consistent with 1-month realized volatility in the S&P 500 Index, which broke 20% as well for the first time yesterday since late August. The VIX to 1M SPX IV spread differential sits at 2.26 vol points and is actually below the 5-year mean of 2.68 vol points. The premium (VIX – SPX 1M IV) is usually indicative of skew which props up the downside puts, an always in demand portfolio hedge. While skew (90%/110% of SPX spot IV) is presently in the top quartile of 5-year readings, the VIX-to-1M SPX IV remains slightly…

SPX futures are modestly lower, down 2 points to 1972.75 this morning. The trade deficit in the US widened in August by the most in five months. The OPEC secretary general said that oil prices are set to rebound as cuts in global oil investment have tightened supplies. The spot VIX finished 19.54 yesterday as the market rallied 1.8%. The VIX futures are all modestly higher and are all within 1 point of each other. The spot VIX finally closed below the 20 handle for the first time since late August (graph below). It did manage to trade below 20 intraday on September 17, however. This is consistent with 1-month realized volatility in the S&P 500 Index, which broke 20% as well for the first time yesterday since late August. The VIX to 1M SPX IV spread differential sits at 2.26 vol points and is actually below the 5-year mean of 2.68 vol points. The premium (VIX – SPX 1M IV) is usually indicative of skew which props up the downside puts, an always in demand portfolio hedge. While skew (90%/110% of SPX spot IV) is presently in the top quartile of 5-year readings, the VIX-to-1M SPX IV remains slightly…

CBOE- New Offerings & XIV Open Interest

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posted by CAPIS on 09/30/2015 at 8:04 am
by CAPIS on 09/30/2015

SPX futures are rallying, up 23 points to 1897.50 as ADP employment change moved up 200k, higher than expected. The Euro-Area inflation rate turned negative for the first time in six months, adding pressure to the ECB to increase stimulus. China cut the minimum home down payment for first-time buyers adding increased stimulus to the nation that has already cut interest rates five times since November. The spot VIX finished 26.83 yesterday. The VIX futures are all lower this morning on the positive tone. The VIX futures are all within one point of each other through June of 2016. At the CBOE’s Risk Management Conference in Geneva, Switzerland, the CBOE announced that it will add three new FTSE Russell Index option chains on October 20. These new offerings include the Russell 1000 Index (RUI), the Russell 1000 Value Index (RLV) and the Russell 1000 Growth Index (RLG). The new options chains are an offspring of the February 2015 licensing agreement between the CBOE and the London Stock Exchange Group (LSEG). This follows the April 1 launch of options on the Russell 2000 Index (RUT) by the CBOE. It should be noted, however, that the ETF IWM (Russell 2000) is an…

SPX futures are rallying, up 23 points to 1897.50 as ADP employment change moved up 200k, higher than expected. The Euro-Area inflation rate turned negative for the first time in six months, adding pressure to the ECB to increase stimulus. China cut the minimum home down payment for first-time buyers adding increased stimulus to the nation that has already cut interest rates five times since November. The spot VIX finished 26.83 yesterday. The VIX futures are all lower this morning on the positive tone. The VIX futures are all within one point of each other through June of 2016. At the CBOE’s Risk Management Conference in Geneva, Switzerland, the CBOE announced that it will add three new FTSE Russell Index option chains on October 20. These new offerings include the Russell 1000 Index (RUI), the Russell 1000 Value Index (RLV) and the Russell 1000 Growth Index (RLG). The new options chains are an offspring of the February 2015 licensing agreement between the CBOE and the London Stock Exchange Group (LSEG). This follows the April 1 launch of options on the Russell 2000 Index (RUT) by the CBOE. It should be noted, however, that the ETF IWM (Russell 2000) is an…

CBOE’s Risk Management Conference: New Benchmarks

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posted by CAPIS on 09/28/2015 at 8:49 am
by CAPIS on 09/28/2015

SPX futures are off 11 points to 1908.25 as the Fed’s New York President William Dudley said that the US is on track for a 2015 interest-rate increase. Cash is on pace to outperform both stocks and bonds this year, something that hasn’t been done since 1990 (BofA/ML). The spot VIX finished 23.62 on Friday and will most certainly follow the VIX futures higher this morning given the negative equity tone. The VIX futures all closed on Friday within one point of each other (graph below). If you remove the December future, which typically trades trades lower due to the holiday season (notice the kink in the graph), the futures all closed within a half point of each other. Goldman notes that these levels represent a middle ground between their estimate given current levels of ISM, employment, and consumer spending (18.26) and the median level over the past three recessions (26). It appears that the VIX is in ‘wait and see’ mode. The annual CBOE Risk Management Conference (RMC) Europe continues this week. Matt Moran (VP Development, CBOE) delivered a speech today citing research on mutual funds’ use of options and volatility-based products. A paper by Keith Black and Edward…

SPX futures are off 11 points to 1908.25 as the Fed’s New York President William Dudley said that the US is on track for a 2015 interest-rate increase. Cash is on pace to outperform both stocks and bonds this year, something that hasn’t been done since 1990 (BofA/ML). The spot VIX finished 23.62 on Friday and will most certainly follow the VIX futures higher this morning given the negative equity tone. The VIX futures all closed on Friday within one point of each other (graph below). If you remove the December future, which typically trades trades lower due to the holiday season (notice the kink in the graph), the futures all closed within a half point of each other. Goldman notes that these levels represent a middle ground between their estimate given current levels of ISM, employment, and consumer spending (18.26) and the median level over the past three recessions (26). It appears that the VIX is in ‘wait and see’ mode. The annual CBOE Risk Management Conference (RMC) Europe continues this week. Matt Moran (VP Development, CBOE) delivered a speech today citing research on mutual funds’ use of options and volatility-based products. A paper by Keith Black and Edward…

CBOE Option Strategy Benchmark Indexes

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posted by CAPIS on 09/23/2015 at 7:58 am
by CAPIS on 09/23/2015

SPX futures are up 5 points to 1937.00 as Europe is leading the market higher. China PMI came in lower than expected but the rally in commodities and European energy producers has buoyed the US. Equities worldwide, however, are set for the worst quarter in four years (Bloomberg). The spot VIX jumped the most (+11.4%) since the August sell-off. The VIX futures are all modestly lower on the positive equity tone. The CBOE offers a Risk Management Conference (RMC) once a year both here and abroad. The European version gets underway this week in Geneva, Switzerland. The RMC here in the US is typically during the first half of the year and typically either in California or Florida. It’s arguably the best symposium on equity/index options globally. Over the years, the CBOE has developed and disseminated a host of Benchmark Indexes for options (and volatility) strategies that allow portfolio managers to track performance. Below is the current Benchmark offering:

SPX futures are up 5 points to 1937.00 as Europe is leading the market higher. China PMI came in lower than expected but the rally in commodities and European energy producers has buoyed the US. Equities worldwide, however, are set for the worst quarter in four years (Bloomberg). The spot VIX jumped the most (+11.4%) since the August sell-off. The VIX futures are all modestly lower on the positive equity tone. The CBOE offers a Risk Management Conference (RMC) once a year both here and abroad. The European version gets underway this week in Geneva, Switzerland. The RMC here in the US is typically during the first half of the year and typically either in California or Florida. It’s arguably the best symposium on equity/index options globally. Over the years, the CBOE has developed and disseminated a host of Benchmark Indexes for options (and volatility) strategies that allow portfolio managers to track performance. Below is the current Benchmark offering:

The FED Is Maintaining A Status Quo In Vol For 2015

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posted by CAPIS on 09/21/2015 at 8:20 am
by CAPIS on 09/21/2015

SPX futures are up 7 points to 1957.50 ahead of Atlanta Fed President Dennis Lockhart’s speech today in Atlanta (12:15PM EST). Two Fed presidents have come out and said that an October hike is not out of the question this morning. Existing home sales are due out a 10AM EST. The VIX finished 22.28 on Friday. The VIX futures, all above the 20 handle, are modestly lower this morning on the positive equity tone. It seems that volatility should remain throughout the remainder of the year as the FED pushed back its opportunity to raise rates from the 0 – .25% levels. The current Fed Futures ‘probability of a rate raise’ has moved all the way out to December before it hits 50/50. Now as we add to the concerns over growth in China, oil and commodities tanking, corporate profits falling, and the Fed’s overall disposition (global growth concerns and pushing back a rate hike), it seems that in the very least we should have a very interesting and possibly tumultuous remainder of 2015. I think we remain with a VIX level around historical averages of 20 or so until the December meeting for the Fed. The winning trade over…

SPX futures are up 7 points to 1957.50 ahead of Atlanta Fed President Dennis Lockhart’s speech today in Atlanta (12:15PM EST). Two Fed presidents have come out and said that an October hike is not out of the question this morning. Existing home sales are due out a 10AM EST. The VIX finished 22.28 on Friday. The VIX futures, all above the 20 handle, are modestly lower this morning on the positive equity tone. It seems that volatility should remain throughout the remainder of the year as the FED pushed back its opportunity to raise rates from the 0 – .25% levels. The current Fed Futures ‘probability of a rate raise’ has moved all the way out to December before it hits 50/50. Now as we add to the concerns over growth in China, oil and commodities tanking, corporate profits falling, and the Fed’s overall disposition (global growth concerns and pushing back a rate hike), it seems that in the very least we should have a very interesting and possibly tumultuous remainder of 2015. I think we remain with a VIX level around historical averages of 20 or so until the December meeting for the Fed. The winning trade over…

Market Volatility and the FED

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posted by CAPIS on 09/15/2015 at 8:15 am
by CAPIS on 09/15/2015

SPX futures are strengthening this morning, up 6 points to 1950.  Retail sales have risen .2 percent after a .7 percent revised number (higher than expected) for July.  North Korea has threatened the US and other enemies with nuclear weapons in another round of sabre rattling that is customary for the nation.  China approved guidelines for generating a list of sectors and businesses that will be off-limits for foreign investors as it continues to try to protect its local markets.  The spot VIX finished higher yesterday, 24.25.  The VIX futures are all lower this morning on the positive equity tone. It’s all about the FED this week.  The bull market that began in March 2009 is the third longest in history and it’s the longest ever to go without a rate increase by the FED (Bloomberg).  Also, consider that the FED has never started tightening within a month of a correction (Bloomberg).  As we reported last week, net long positions in VIX futures moved to a record 32,000 contracts last week.  A VIX of 24 is nearly 50% higher than the average 16.9 reading since 1990 for anytime the FED has tightened.  The FED fund futures are pricing in a…

SPX futures are strengthening this morning, up 6 points to 1950.  Retail sales have risen .2 percent after a .7 percent revised number (higher than expected) for July.  North Korea has threatened the US and other enemies with nuclear weapons in another round of sabre rattling that is customary for the nation.  China approved guidelines for generating a list of sectors and businesses that will be off-limits for foreign investors as it continues to try to protect its local markets.  The spot VIX finished higher yesterday, 24.25.  The VIX futures are all lower this morning on the positive equity tone. It’s all about the FED this week.  The bull market that began in March 2009 is the third longest in history and it’s the longest ever to go without a rate increase by the FED (Bloomberg).  Also, consider that the FED has never started tightening within a month of a correction (Bloomberg).  As we reported last week, net long positions in VIX futures moved to a record 32,000 contracts last week.  A VIX of 24 is nearly 50% higher than the average 16.9 reading since 1990 for anytime the FED has tightened.  The FED fund futures are pricing in a…

What Factors Are Driving The VIX?

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posted by CAPIS on 09/09/2015 at 8:17 am
by CAPIS on 09/09/2015

SPX futures are up 20.5 points to 1986.25 (+1%) following soaring Asian markets.  Japan’s Nikkei jumped 7.7% on PM Abe’s pledged tax cuts.  This was the biggest upside move in the Nikkei in over seven years.  The Shanghai Composite moved up 2.3% as well on its own tax reform rhetoric.  The spot VIX closed just under 25 yesterday.  The VIX futures are all moving lower this morning with the front four months remaining in bacwardation. Goldman put out a note with their thoughts on current VIX levels and what drives the VIX in general.  As has been reported here before, Goldman often uses a regression analysis on domestic economic data inputs.  Per Goldman, “A regression of average calendar month VIX levels on US consumer spending, manufacturing and employment data explain 59% of the variability in VIX levels back to 2000.”  Using that data, the VIX should be trading right around 18.  What is driving the VIX to higher levels (25) are other risk components like a FED rate hike, China’s currency devaluation, a decline in oil prices, a rise in high yield spreads, and slowing global growth.  According to Goldman, these other factors suggest a VIX in the 25 –…

SPX futures are up 20.5 points to 1986.25 (+1%) following soaring Asian markets.  Japan’s Nikkei jumped 7.7% on PM Abe’s pledged tax cuts.  This was the biggest upside move in the Nikkei in over seven years.  The Shanghai Composite moved up 2.3% as well on its own tax reform rhetoric.  The spot VIX closed just under 25 yesterday.  The VIX futures are all moving lower this morning with the front four months remaining in bacwardation. Goldman put out a note with their thoughts on current VIX levels and what drives the VIX in general.  As has been reported here before, Goldman often uses a regression analysis on domestic economic data inputs.  Per Goldman, “A regression of average calendar month VIX levels on US consumer spending, manufacturing and employment data explain 59% of the variability in VIX levels back to 2000.”  Using that data, the VIX should be trading right around 18.  What is driving the VIX to higher levels (25) are other risk components like a FED rate hike, China’s currency devaluation, a decline in oil prices, a rise in high yield spreads, and slowing global growth.  According to Goldman, these other factors suggest a VIX in the 25 –…

VIX Futures Positions Reverse Course

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posted by CAPIS on 09/08/2015 at 11:33 am
by CAPIS on 09/08/2015

SPX futures are up 33 points to 1954.75 this morning after late Chinese and oil rally.  China is still on a bit of a roller coaster ride.  Reuters noted that Ausust, where Chinese exports dropped 5.5%, was the 10th month in a row of declines and the worst stretch since the 2008 crisis.  Back in May, futures on CSI-300 (China’s S&P 500) were the most traded financial contracts in the world (Zero Hedge).  Today, thanks to the banning of selling by the Chinese government, volume is at its lowest levels in three years.  The cash VIX finished 27.8 on Friday.  The VIX futures are all lower but still remain in backwardation through the 7th contract (March/’16). The VIX (27.8) is nearly twice its average level (14.8) for the past three years.  As noted last week, demand for VIX options, in implied volatility terms (VVIX), had recently set a high (168% – 8/24/15) not seen even during the financial crisis.  In fact, net VIX futures positions by hedge funds has completely reversed course from net short 60,000 contracts in early August to net long 32,000 contracts (Bloomberg/graph below).  According to CFTC data, speculators were net short 44,000 VIX contracts on average…

SPX futures are up 33 points to 1954.75 this morning after late Chinese and oil rally.  China is still on a bit of a roller coaster ride.  Reuters noted that Ausust, where Chinese exports dropped 5.5%, was the 10th month in a row of declines and the worst stretch since the 2008 crisis.  Back in May, futures on CSI-300 (China’s S&P 500) were the most traded financial contracts in the world (Zero Hedge).  Today, thanks to the banning of selling by the Chinese government, volume is at its lowest levels in three years.  The cash VIX finished 27.8 on Friday.  The VIX futures are all lower but still remain in backwardation through the 7th contract (March/’16). The VIX (27.8) is nearly twice its average level (14.8) for the past three years.  As noted last week, demand for VIX options, in implied volatility terms (VVIX), had recently set a high (168% – 8/24/15) not seen even during the financial crisis.  In fact, net VIX futures positions by hedge funds has completely reversed course from net short 60,000 contracts in early August to net long 32,000 contracts (Bloomberg/graph below).  According to CFTC data, speculators were net short 44,000 VIX contracts on average…

VIX: Backwardation and Rising Implied Volatility

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Volatility Monitor

posted by CAPIS on 09/01/2015 at 7:59 am
by CAPIS on 09/01/2015

SPX futures are off nearly 40 points this morning.  Data out of China continues to suggest an economic slowdown for the nation after factory output came in at a three year low.  Adding to the consternation, last week Fed Vice Chairman Stanley Fischer suggested that the central bank hasn’t ruled out raising interest rates at the FOMC meeting in mid-September (Bloomberg).  The VIX futures are disseminating a distinct backwardation this morning as the first seven VIX futures trend from 28.2 to 22.75.  The spot VIX finished 28.43 yesterday but should jump into the mid-thirties on the open. The extent of backwardation in the VIX futures is shown in the graph below.  The green line represents live data this morning versus the typical contango structure seen just two weeks ago in orange.  The short vol trade that has worked so well over the last several years has gotten killed over the last two weeks.  Two-week realized volatility (S&P 500) has jumped to 41%, its highest levels since August/2011 when it hit 65%.  The S&P 500 just posted its worst month since May/2012, falling 6.3%. Not only is the VIX higher but like we discussed last week, so is VIX implied volatility…

SPX futures are off nearly 40 points this morning.  Data out of China continues to suggest an economic slowdown for the nation after factory output came in at a three year low.  Adding to the consternation, last week Fed Vice Chairman Stanley Fischer suggested that the central bank hasn’t ruled out raising interest rates at the FOMC meeting in mid-September (Bloomberg).  The VIX futures are disseminating a distinct backwardation this morning as the first seven VIX futures trend from 28.2 to 22.75.  The spot VIX finished 28.43 yesterday but should jump into the mid-thirties on the open. The extent of backwardation in the VIX futures is shown in the graph below.  The green line represents live data this morning versus the typical contango structure seen just two weeks ago in orange.  The short vol trade that has worked so well over the last several years has gotten killed over the last two weeks.  Two-week realized volatility (S&P 500) has jumped to 41%, its highest levels since August/2011 when it hit 65%.  The S&P 500 just posted its worst month since May/2012, falling 6.3%. Not only is the VIX higher but like we discussed last week, so is VIX implied volatility…

Time to Short the VIX?

News Trading Desk Volatility Monitor

Volatility Monitor

posted by CAPIS on 08/27/2015 at 8:34 am
by CAPIS on 08/27/2015

SPX futures are up 22.5 points to 1960.50.  The US economy grew more than forecast with annualized GDP 3.7% vs. forecast 3.2%.  Jobless claims declined to a three-week low.  Europe and China are both higher.  Gold is slightly lower while crude has move to $40, up 3.5%.  The spot VIX finished 30.32 yesterday on the relief rally.  The VIX futures are all lower this morning given the distinct positive equity tone. So is it time to short the VIX?  Shorting anything can be painful, much less the VIX.  Shorting the VIX is simply shorting the generic one-month vol in the S&P 500, skew and all.  You would need a futures account to do so for any of the nine one-month futures contracts.  The ‘short’ case can be made for any of the front four month futures given that we are in rarified backwardation.  The options are cash settled and price off each of the corresponding futures (e.g. the 3rd VIX future/options is a bet on 1-month vol roughly three months from now), making it accessible to the general non-futures trading public. Looking at the VIX graph below, you can see that the VIX (30.32) has really only been over 30…

SPX futures are up 22.5 points to 1960.50.  The US economy grew more than forecast with annualized GDP 3.7% vs. forecast 3.2%.  Jobless claims declined to a three-week low.  Europe and China are both higher.  Gold is slightly lower while crude has move to $40, up 3.5%.  The spot VIX finished 30.32 yesterday on the relief rally.  The VIX futures are all lower this morning given the distinct positive equity tone. So is it time to short the VIX?  Shorting anything can be painful, much less the VIX.  Shorting the VIX is simply shorting the generic one-month vol in the S&P 500, skew and all.  You would need a futures account to do so for any of the nine one-month futures contracts.  The ‘short’ case can be made for any of the front four month futures given that we are in rarified backwardation.  The options are cash settled and price off each of the corresponding futures (e.g. the 3rd VIX future/options is a bet on 1-month vol roughly three months from now), making it accessible to the general non-futures trading public. Looking at the VIX graph below, you can see that the VIX (30.32) has really only been over 30…

“Here’s Johnny!” Volatility and Vol-of-Vol

News Trading Desk Volatility Monitor

Volatility Monitor

posted by CAPIS on 08/25/2015 at 8:16 am
by CAPIS on 08/25/2015

SPX futures are up 62 points to 1933.20 on a People’s Bank of China rate(s) cut.  This is the fifth time since November that such cuts have been made.  Apparently it was China’s inaction over the weekend that cratered its market.  Crude oil has rebounded by 3.5%, but still remains under the 40 handle.  Gold is slightly lower.  As you would expect given the equity tone this morning, the VIX futures are all lower, but still remain in slight backwardation through Jan/’16. Well yesterday seemed to catch quite a few people off guard.  The SPX E-mini futures were limit down on the open which had ripple effects across the options markets.  SPX options were very spotty for nearly a half-hour after the open because of this.  The VIX futures and options, which price off the SPX options chain, were obviously spotty to non-existent during the same period.  This of course then reverberates throughout the VIX ETFs (VXX, SVXY, etc).  All of this was set in motion with the carnage in China.  The Shanghai Composite Index fell 15% over the past two trading sessions.  Early this morning, the PBoC pushed multiple rate cuts:  the RRR from 18.5% to 18.00%, the deposit…

SPX futures are up 62 points to 1933.20 on a People’s Bank of China rate(s) cut.  This is the fifth time since November that such cuts have been made.  Apparently it was China’s inaction over the weekend that cratered its market.  Crude oil has rebounded by 3.5%, but still remains under the 40 handle.  Gold is slightly lower.  As you would expect given the equity tone this morning, the VIX futures are all lower, but still remain in slight backwardation through Jan/’16. Well yesterday seemed to catch quite a few people off guard.  The SPX E-mini futures were limit down on the open which had ripple effects across the options markets.  SPX options were very spotty for nearly a half-hour after the open because of this.  The VIX futures and options, which price off the SPX options chain, were obviously spotty to non-existent during the same period.  This of course then reverberates throughout the VIX ETFs (VXX, SVXY, etc).  All of this was set in motion with the carnage in China.  The Shanghai Composite Index fell 15% over the past two trading sessions.  Early this morning, the PBoC pushed multiple rate cuts:  the RRR from 18.5% to 18.00%, the deposit…

Recent Volatility – China

News Trading Desk Volatility Monitor

Volatility Monitor

posted by CAPIS on 08/20/2015 at 8:35 am
by CAPIS on 08/20/2015

SPX futures are off 13 to 2059.75 this morning as US jobless claims posted a slight unexpected increase.  China is trading lower.  Crude is off slightly while gold is up over 1%.  The spot VIX finished 15.25 yesterday while the VIX futures are all lower on the negative equity tone. There’s no question that China has had a rough go of it since April.  In fact, the emerging markets as a whole have been off over 10% this year (BRICs).  The iShares China Large-Cap Fund ETF (FXI) saw 1-month realized volatility jump past 50% last month for the first time since 2011.  Even so, 1- and 3-month IV have both stayed rather muted at just under 30%.  I say muted, relative to recent vol, but the reality is that both 1- and 3-month realized and implied volatilities rarely get above 30%.  The 5-year average for both IV’s is 24%.  Additionally, if you take out the financial crisis and tally from 1995-2005 in the Shanghai Composite average 1-month realized sits right on 24% as well. But.. do you really want to discount the financial crisis?  Certainly everyone calls it the Black Swan.  The fact is, at least in the S&P 500,…

SPX futures are off 13 to 2059.75 this morning as US jobless claims posted a slight unexpected increase.  China is trading lower.  Crude is off slightly while gold is up over 1%.  The spot VIX finished 15.25 yesterday while the VIX futures are all lower on the negative equity tone. There’s no question that China has had a rough go of it since April.  In fact, the emerging markets as a whole have been off over 10% this year (BRICs).  The iShares China Large-Cap Fund ETF (FXI) saw 1-month realized volatility jump past 50% last month for the first time since 2011.  Even so, 1- and 3-month IV have both stayed rather muted at just under 30%.  I say muted, relative to recent vol, but the reality is that both 1- and 3-month realized and implied volatilities rarely get above 30%.  The 5-year average for both IV’s is 24%.  Additionally, if you take out the financial crisis and tally from 1995-2005 in the Shanghai Composite average 1-month realized sits right on 24% as well. But.. do you really want to discount the financial crisis?  Certainly everyone calls it the Black Swan.  The fact is, at least in the S&P 500,…

Volatility Out of China

News Trading Desk Volatility Monitor

Volatility Monitor

posted by CAPIS on 08/12/2015 at 8:22 am
by CAPIS on 08/12/2015

SPX futures are off by 15 points to 2064.75 as China has devalued the yuan in dramatic fashion in order to kick-start its ailing economy.  One would expect this to not be a positive move for commodity prices, but alas gold is up nearly 1% while crude is up 1.2%.  The spot VIX finished 13.71 yesterday with the S&P off 20 points.  Look for that to continue today with the bearish tone as the VIX futures are up across the board in a flattening of the term structure. Emerging market names have taken a big hit over the last year.  In fact, the MSCI Emerging Markets Index has slumped by 20% since last September.  The slowdown in China’s economy has sent the entire basket of emerging markets into a bear market.  On Tuesday, China cut its reference rate by 1.9% in an attempt to counter weak economic reports showing slowing exports and manufacturing.  The emerging markets sector has also wreaked havoc on commodity prices.  Bloomberg’s Commodity Index (BCOM) is off by roughly one third since mid-2014. As you would expect, emerging market volatility has picked up recently.  The CBOE disseminates a VIX metric for emerging markets, VXEEM.  It’s constructed in…

SPX futures are off by 15 points to 2064.75 as China has devalued the yuan in dramatic fashion in order to kick-start its ailing economy.  One would expect this to not be a positive move for commodity prices, but alas gold is up nearly 1% while crude is up 1.2%.  The spot VIX finished 13.71 yesterday with the S&P off 20 points.  Look for that to continue today with the bearish tone as the VIX futures are up across the board in a flattening of the term structure. Emerging market names have taken a big hit over the last year.  In fact, the MSCI Emerging Markets Index has slumped by 20% since last September.  The slowdown in China’s economy has sent the entire basket of emerging markets into a bear market.  On Tuesday, China cut its reference rate by 1.9% in an attempt to counter weak economic reports showing slowing exports and manufacturing.  The emerging markets sector has also wreaked havoc on commodity prices.  Bloomberg’s Commodity Index (BCOM) is off by roughly one third since mid-2014. As you would expect, emerging market volatility has picked up recently.  The CBOE disseminates a VIX metric for emerging markets, VXEEM.  It’s constructed in…

SPX & VIX: Low Absolute Volatility Levels & Extreme Skew

News Trading Desk Volatility Monitor

Volatility Monitor

posted by CAPIS on 08/10/2015 at 8:22 am
by CAPIS on 08/10/2015

SPX futures are up 14 points to 2087.50.  Chinese stocks are seeing their best 1-day gain in over a month as equities are up 5%.  Both oil and gold are up modestly this morning.  Stanley Fischer, vice chairman of the US central bank, stated this morning that the Fed won’t move before it sees inflation returning to more normal levels.  The FOMC meeting is slated for September 16-17 and it appears 50/50 that the Fed will raise interest rates for the first time in a decade.  The spot VIX finished 13.39 on Friday.  The VIX futures are all lower this morning given the positive pre-market equity tone. Althought the S&P 500 is only 2.5% from its all-time high, it did drop over 1% last week alone.  The VIX (13.39), however, is still sitting over 30% from its long run average of 20 and doesn’t seem to be disseminating any sort of nervousness in the market.  There is one aspect of the VIX that contradicts this though and that is the cost of VIX skew.  Upside calls are extremely expensive when compared to downside puts.  Both 1- and 3-month expirations are showing skew in the top 3% of readings looking back…

SPX futures are up 14 points to 2087.50.  Chinese stocks are seeing their best 1-day gain in over a month as equities are up 5%.  Both oil and gold are up modestly this morning.  Stanley Fischer, vice chairman of the US central bank, stated this morning that the Fed won’t move before it sees inflation returning to more normal levels.  The FOMC meeting is slated for September 16-17 and it appears 50/50 that the Fed will raise interest rates for the first time in a decade.  The spot VIX finished 13.39 on Friday.  The VIX futures are all lower this morning given the positive pre-market equity tone. Althought the S&P 500 is only 2.5% from its all-time high, it did drop over 1% last week alone.  The VIX (13.39), however, is still sitting over 30% from its long run average of 20 and doesn’t seem to be disseminating any sort of nervousness in the market.  There is one aspect of the VIX that contradicts this though and that is the cost of VIX skew.  Upside calls are extremely expensive when compared to downside puts.  Both 1- and 3-month expirations are showing skew in the top 3% of readings looking back…

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