First Half of 2016 Confirms a Higher Volatility Regime

We are already half way done with 2016 and it appears what we thought going into the year is being confirmed by SPX implied volatility. If the Fall of 2015 there was lots of chatter about the equity markets in the US shifting from a low to a high volatility regime. The low volatility regime had been in place for several years and the first signal of a change came back in late August 2015 when VIX topped 50 intraday for the first time since the great financial crisis. I have two favorite charts that give a good long term perspective on VIX and couldn’t decide which one to use so I settled on both.


Mid-Year Update on Volatility Indexes, and Thirty Years of Price History for Benchmark Indexes

Here are mid-year updates on benchmark indexes and volatility indexes at CBOE –

(1) Nine CBOE benchmark indexes all have had less volatility than key stock indexes over the last three decades;
(2) The highest daily closing values for select volatility indexes so far this year were 28.14 on Feb. 11 for the VIX Index, and 125.13 on June 24 for the VVIX Index. The CBOE/CME FX British Pound Volatility Index (BPVIX) rose prior to the Brexit referendum, and its daily closing values had a big range from 7.72 on January 8, to 29.1 on June 14.
(3) On June 24 VIX futures had record trading volume during non-U.S. trading hours (ETH).

See below for more details.


Nine CBOE benchmark indexes that invest in SPX options (with tickers BFLY, BXM, BXMD, CLL, CLLZ, CMBO, CNDR, PPUT, and PUT) have price histories that begin on June 30, 1986. The CBOE benchmark indexes have facilitated increased use of SPX options by mutual funds and pension funds in recent years. Over the past three decades, all nine of the benchmark indexes had less volatility than key stock indexes such as the S&P 500® and MSCI EAFE®, and the CBOE PUT and BXMD indexes also had higher returns than the key stock indexes.

So far in 2016, the BXMD Index is up 3.6%.

To learn more, please visit CBOE Benchmark Indexes webpage. Blogs on all nine indexes will be posted in the next week at the CBOE Options Hub.


As shown in the chart below, daily volume for VIX futures rose above 400,000 contracts on each of the three days after the Brexit announcement. On June 24 the CBOE Futures Exchange (CFE) announced record volume was set in non-U.S. trading hours (ETH) in VIX futures with an estimated 235,000 contracts changing hands. The June 24 record surpassed the previous single-day record of 140,811 contracts set on August 24, 2015.


So far this year the peak daily closing price for the OVX Index was 78.97 on February 12. Note in the chart below that all three volatility indexes – OVX, VIX and BPVIX – peaked at different times.

The peak daily closing values were 43.43 on January 20 for the VXAPL Index, and 35.69 for the VXIBM Index


To learn more about the indexes above, please visit and

CBOE SKEW Index Rose to 153.66 on June 28, Its All-Time High

On June 28 the CBOE SKEW Index rose to 153.66, the all-time high for its price history that began in January 1990.

Here are the relatively high values for the CBOE SKEW Index in recent days —
15-Jun                   140.91
16-Jun                   142.50
17-Jun                   137.94
20-Jun                   137.81
21-Jun                   135.92
22-Jun                   136.48
23-Jun                   145.70
24-Jun                   142.92
27-Jun                   136.43
28-Jun                   153.66

CBOE SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence.  The value of SKEW increases with the expected tail risk of S&P 500 returns. If there were no tail risk expectations, SKEW would be equal to 100. Historically, SKEW has varied in a range of 100 to 147 around an average value of 115.

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

The CBOE Volatility Index® (VIX®) and other volatility indexes can be very valuable tools for investors, as the indexes are well-known, numerical gauges that show changes in expected volatility over time.  Investors can now use a number of volatility indexes — (1) the new CBOE Short-Term Volatility Index (VXSTSM), (2) CBOE Volatility Index (VIX), and (3) CBOE 3-Month Volatility Index (VXVSM) — to gain an understanding of expected volatility of the S&P 500 over different time periods, and can use the VVIX Index for expected volatility of the popular VIX Index. However, none of these volatility indexes gives investors much information regarding the fact that implied volatility can vary across different strike prices.  The CBOE SKEW Index can provide valuable information and signals to investors above and beyond the information supplied by the VIX Index.  The SKEW Index could be helpful to both hedgers and traders in identifying times in which OTM SPX puts are relatively expensive compared to ATM options.  The SKEW Index could be a valuable informational tool to investors who are considering engaging in the vertical spread strategy, an options trading strategy with which a trader makes a simultaneous purchase and sale of two options that have the same expiration dates and same underlying security but different strike prices.  Hedgers who contemplate the purchase of SPX OTM protective puts can use both the VIX and SKEW indexes to gain a better idea of the relative cost of the strategy.

The CBOE SKEW Index provides valuable historical and up-to-date information to investors and hedgers, and can serve as a great complement to the CBOE’s volatility indexes.  More information and price history is at<>.

CBOE RMC Europe Keynote Address Speaker Announced

Independence Day is just around the corner which means I’m starting to look forward to my Fall travel schedule. Two of the things I get to do (I say this as I consider it a great perk of my job) is attend CBOE’s Risk Management conferences in Europe and Asia. The European version is scheduled for September 26 – 28 when we return to the Powerscourt Hotel in County Wicklow outside of Dublin Ireland. Today I learned that the keynote speaker will be Jim VandeHei who was a co-founder of Politico.

We were fortunate to have Jim speak at the US version of CBOE’s RMC Conference back in March. The timing was perfect then as he addressed the conference the day after Super Tuesday primary day where he declared that Trump would be the Republican nominee and he even noted it is possible that Trump could be elected President while acknowledging Clinton seemed to be set to win.

His address in Europe will be very timely as well as it will come just weeks before the US Presidential election. For more information or to register to attend any version of CBOE’s Risk Management Conference click on this link –

Did Social Media Sentiment Regarding the Pound Predict Brexit?

One commentator described the Brexit process was described as entering uncharted territory over the weekend. The same could be said for gauging social media sentiment. Our friends at Social Market Analytics continue to take a look at data that may have been a predictor of an outcome that the pollsters and bookies got very wrong. I received a couple of charts this morning and one completely stands out. Below is a chart of the sentiment with respect to the British Pound versus the US Dollar leading up to, during, and after the recent election.

SMA GPB Brexit

The trend going back to early June is decisively negative for the British Pound. Even when there were times that the polls appeared to be all about ‘remain’ the sentiment remained negative and continued to trend to more negative. We are in new territory with respect to using this sort of data to predict different electoral outcomes, but it appears Social Market Analytics is on to something. I know they are already monitoring commentary with respect to the coming presidential election. It’ll be interesting to see if they outshine the professional pollsters again.

How Did the Brexit Timeline Affect Volatility?

Editors note – the following blog was put together by a team of interns from CBOE. 

Nicholas Ghilardi will be a Junior at the University of Illinois in Urbana-Champaign and is majoring in Engineering Physics with a minor in Mathematics.

Gillian Hood will be Junior at Vanderbilt University and is majoring in Economics with minors in Corporate Strategy and Finance.

Noah Silverman will be a Sophomore at Washington University in St. Louis and is majoring in Finance. 

Last Thursday, citizens of the United Kingdom voted to leave the European Union in a historic referendum, known as Brexit, creating turbulent markets on Friday. While the unknown ramifications of the UK leaving the European Union have undoubtedly increased uncertainty in the marketplace, the Brexit-related events leading up to the referendum have also had a substantial effect on our volatility indices. Here is a brief summary of these events:

  • February 20th, 2016: The June 23rd referendum date was announced.
  • May 5th, 2016: Elections were held across the UK.
  • May 27th, 2016: Purdah began, preventing central and local government officials in the UK from publishing material relating to the referendum.
  • June 16th, 2016: British Labour Party member Jo Cox was killed.
  • June 23rd, 2016: Citizens of the UK voted to leave or to stay in the European Union.

Intern Brexit 1



Data Source:  Bloomberg


Weekly Market Outlook – Where Things Stand After Brexit

Through Thursday, not only was the market’s action palatable, it was downright bullish. Investors were increasingly confident the Brexit wouldn’t happen. Big mistake. When traders realized the “leave” crowd just edged out the “remain” crowd, it pulled the rug out from underneath the bullishness. When all was said and done, Friday’s 3.6% plunge from the S&P 500 (SPX) (SPY) translated into a loss of 1.6% for the week.

Now what? Good question. Perhaps the one-day drubbing was enough to hit the market’s proverbial reset button. Or, maybe there just wasn’t time and room to sell any more stocks on Friday, and the bears will pick up where they left off come Monday morning. The arguments from both sides of the table are surprisingly strong.

We’ll look at the bullish and bearish cases in a moment, after a quick run-down of last week’s and this week’s economic news.

Economic Data

Last week didn’t dish out a whole lot of economic news, but most of what we got was important stuff. For instance, we got an updated feel for how things look on the real estate front with an update on new-home and existing-home sales.

In short, we continue to see strength there. Existing-home sales perked up to a multi-year high pace of 5.53 million, and though new-home sales fell to a pace of 551,000, they’re still in a broad uptrend. In both cases we can see that inventory remains at minimal levels, perhaps serving as something of a bottleneck.

New, Existing Home Sales Chart


Source: Thomson Reuters

We also heard a surprisingly disappointing durable orders report for May, with or without (usually volatile) transportation orders. Even taking planes, trains, and automobiles out of the equation, orders slumped 0.3% rather than growing the anticipated 0.5%.

While the month-to-month changes don’t actually tell is much (ignoring seasonal changes and ignoring cases where the prior month’s total is a statistical outlier), our chart below also plots the raw durable orders data (green, bottom). It’s here we can see it looks like durable orders — which includes transportation orders — have already peaked.

Durable Orders Chart


Source: Thomson Reuters

Everything else is on the following grid:

Economic Calendar



This week will be much busier, kicking off with Monday’s third and final look at Q2’s GDP data. The pros say it should roll in at 1.0% growth, up from the 2nd estimates of 0.8%. The chart below doesn’t plot any of the preliminary Q1 readings; it just plots the final Q4-2015 growth rate. But, you can see that versus a reading of +1.4% in Q4, we’re slowing down no matter what figure comes in on Monday.

GDP Growth Chart


Source: Thomson Reuters

It’s also going to be a big week for consumer confidence scores (though some of the scores may have been tallied before Brexit). You may have seen we got the final Michigan Sentiment Index reading for June on Friday, but this week we’ll round it out with June’s Conference Board consumer confidence score. Analysts expect a slight uptick, from 92.6 to 93.1. Even with the modest move higher though, the Conference Board’s measure is in a downtrend even as the Michigan reading looks to be somewhat improving.

Consumer Confidence Chart


Source: Thomson Reuters

Last but not least, though it’s not usually a piece of data we’re too concerned about, in light of the “peak auto” debate that was stirred up a few months back, it may be worth looking at Friday’s auto sales figures relative to recent levels. Car sales have been falling since late last year, but now, even truck sales seem to be hitting a headwind. This report could be quite catalytic, for the better or the worse.

Automobile Sales Chart More

Left Tail Risk for CBOE Benchmark Indexes: Nine Histograms

Volatility in the many worldwide markets shot up last week, which has left investors looking for the better ways to manage risk. Some investors still have the misconception that all options strategies are more risky than common stock and bond strategies, but the histogram analysis below shows that nine CBOE benchmark indexes have less left tail risk than the S&P 500® total return index since mid-1986. A total of 9 histograms were created, directly comparing the monthly returns of the PUT, CNDR, BXM, CMBO, CLLZ, BXMD, PPUT, CLL, and BFLY indexes with those of the S&P 500, from July 1986 through May 2016. The percent change of monthly returns was calculated, and the graphs then display the frequency of monthly returns that fall within each of these percent change ranges. The monthly percent changes of the S&P 500 ranged from -21.54% to 13.47%, while the CBOE benchmarks ranged anywhere between -19.58% and 12.6%, with the vast majority of months falling between the 0% to 2% range.

In all cases, there were more months with positive returns than there were with negative returns. Of the 359 months analyzed, the S&P 500 had 231 with positive monthly returns (64.35% of months), while the 9 benchmark indexes had an average of 237 positive monthly returns (66.14% of months). Therefore, theses benchmark indexes were statistically less likely to have a negative return than the S&P 500.

It can also be noted that all 9 of the benchmarks analyzed had fewer monthly returns below -8% than the S&P 500. For example, the BFLY and CLL benchmarks each had only one month that fell in this range, compared to the S&P 500’s 13 months. The histograms below show there was less left tail risk for CBOE benchmark Indexes when compared to the S&P 500.

1. CBOE S&P 500 Iron Butterfly Index (BFLY)

BFLY – CBOE S&P 500 Iron Butterfly Index – tracks the performance of a hypothetical option trading strategy that 1) sells a rolling monthly at-the-money (ATM) S&P 500 Index (SPX) put and call option; 2) buys a rolling monthly 5% out-of-the-money (OTM) SPX put and call option to reduce risk; and 3) holds a money market account invested in one-month Treasury bills, which is rebalanced on the option roll day and is designed to limit the downside return of the index.
Note that the S&P 500 had 13 declines below -8%, while BFLY had 1.

2. CBOE S&P 500 95-110 Collar Index (CLL)

CLL – CBOE S&P 500 95-110 Collar Index – purchase stocks in the S&P 500 index, and each month sell SPX call options at 110% of the index value, and each quarter purchase SPX put options at 95% of the index value.
Note that the S&P 500 had 13 monthly declines below -8%, while CLL had 1.

3. CBOE S&P 500 5% Put Protection Index (PPUT)

PPUT – CBOE S&P 500 5% Put Protection Index – strategy that holds a long position indexed to the S&P 500 Index and buys a monthly 5% out-of-the-money (OTM) S&P 500 Index (SPX) put option as a hedge.
Note that S&P 500 had 13 monthly declines below -8%, while PPUT had 8.

4. CBOE S&P 500 30-Delta BuyWrite Index (BXMD)

BXMD – CBOE S&P 500 30-Delta BuyWrite Index is designed to track the performance of a hypothetical covered call strategy that holds a long position indexed to the S&P 500 Index and sells a monthly out-of-the-money (OTM) S&P 500 Index (SPX) call option. The call option written is the strike nearest to the 30 Delta at 10:00 a.m. CT on the Roll Date.
Note that the S&P 500 had 13 monthly declines below -8%, while BXMD had 9.

5. CBOE S&P 500 Zero-Cost Put Spread Collar (CLLZ)

CLLZ – CBOE S&P 500 Zero-Cost Put Spread Collar Index – track the performance of a hypothetical option trading strategy that 1) holds a long position indexed to the S&P 500 Index; 2) on a monthly basis buys a 2.5% – 5% S&P 500 Index (SPX) put option spread; and 3) sells a monthly out-of-the-money (OTM) SPX call option to cover the cost of the put spread.
Note that the S&P 500 had 13 monthly declines below -8%, while CLLZ had 7.
MM5 More

Weekend Review – VIX Options and Futures – 6/20 – 6/24

On Thursday the world appeared to have dodged a bullet, but much like counting your chickens before the hatch, the market reacted a little too quickly and early to the assumed outcome of the EU referendum in Britain. The result was Friday which does not need to be rehashed here.

The week over week changes for VIX and the standard monthly VIX futures appear below. Things we look more dramatic if I’d use the Thursday to Friday changes to construct the chart.

VIX Curve Table


Weekend Review – Volatility Indexes and ETPs – 6/20 – 6/24

Global stocks took it on the chin Friday after the outcome for the vote in Britain determined that the majority of voters want to break from the European Union. Usually I show the week over week change for VXST, VIX, VXV, and VXMT to lead off this blog. Because the week over week change doesn’t tell the full story I included the closing prices from Thursday as well.


The lowest line on the chart shows the closing levels for each of these S&P 500 oriented volatility indexes the day before the US stock market reacted to the news out of Britain. Two things stand out on this chart. First, the line is lower than last week’s close which shows that the one day move for volatility was greater than the week over week move for each index. Something else that stands out is the relative level of VXST to VIX. VXST is a nine-day measure of volatility as indicated by very short dated SPX option pricing. Regardless of how certain the bookies were in Britain with respect to the vote going ‘remain’ the option market was poised for a bit of short term risk.  Sometimes the financial markets are smarter than the gambling houses.


Why A Non-Directional Trade Did Well Today Despite the Big Move

Trade #1 did absolutely great today, and it was a basic non-Directional trade that made 20% today with the market going drastically against us. The trade was a balanced Butterfly trade in SPX in the August 19 expiration, and the width of the Butterfly was 40.The trade was put on yesterday when SPX was around 2105.The trade was put on using all Calls. Here is the trade using a 1 contract example. Buy 1 2065 and sell 2 2105’s and Buy 1 2145. I bought some units at $5.40, $5.30, and $5.20. A unit could be 1-2-1 or 2-4-2 or 3-6-3, whatever size you are trading at. In this trade, we want the price of SPX to be near the short strike of 2105. Today at around 9:45 am central time, SPX was around $2059 and I got out of my entire trade that I bought around $5.30 and sold it for a $6.40 Credit, a return of about 20%. How did that happen with SPX moving about 50-60 points from the short strike, which is bad for this trade? Did theta get us the high return in 1 day? No. VIX was up about 3 points at 8:45 am central, this is a short Vega trade, shouldn’t an increase in Implied Volatility hurt an Short Vega at-the- money Butterfly trade? It should, but this was a bit of an unusual situation. Usually when SPX closes around $2110 which it did yesterday, the VIX would be between 11-15 because if SPX is 30-35 points from its all time high, VIX would be in the lower end of the range. But yesterday the VIX was around 18 because of the UK vote, sort of an Earnings situation for the market, an Event that could trigger a big Gap move. With VIX up about 3 at 8:45 am central, we still made money from the implied Volatility because the Volatility increases in the individual strikes of our Butterfly worked in our favor. Just because the VIX went up doesn’t mean we had to lose on a short Vega trade. The key is what happened with the volatility of each of the strikes of the Butterfly combined.

The Weekly Options News Roundup – 6/24/2016

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX Index and volatility-related articles from print, broadcast, online and social media outlets.

 VIX Futures Hits Its Note
The CBOE Futures Exchange (CFE) announced today that VIX Futures hit a new record during its DSC_0368extended hours trading session following the announcement of a British exit from the European Union. An estimated  235,000 contracts changed hands, surpassing its previous record of 140,811 contracts set in August 2015.  VIX futures trade nearly 24 hours a day, five days a week, with the extended trading hour session designed to allow overseas investors access to volatility products in real time as events like “Brexit” unfold.   For more information see Press Release.

Once Upon A Time
CBOE has a unique story that sets it apart from other financial exchanges and allows it to remain at the forefront of technological innovation with the creation of new products that give investors the ability to better target hedging activities.  There are many chapters to this story and most recently, CBOE partnered with Social Market Analytics (SMA) to create actionable sentiment-based social media analytics for markets measurement. See what happens when CBOE’s Russell Rhoads applies this social sentiment to the Brexit phenomena on the Options Hub.

“CBOE Acts Like A Tech Original Equipment Manufacturer” – Jonathan Salem Baskin, Forbes

“What Is The CBOE” – Dan Caplinger, The Motley Fool

Investors were greeted this morning with the historic news that the U.K. voted to leave the European Union, creating a global free fall throughout Markets.   The Dow Jones Industrial 20160624_083353Average opened approximately 500 points lower; meanwhile, the VIX steadily rose throughout the week in anticipation of more volatile markets, now up 47% on the week.  For now, it seems market bears have come roaring out of hibernation.

“VIX ETF Trading Goes Bananas” – Chris Dieterich, Barron’s

“Hedge Funds Are Shorting The VIX Big Time” – Chris Dieterich, Barron’s

“Buckle Up! Volatility Seen Lasting Through Thursday’s Brexit Vote” – Benzinga

“Wall Street’s ‘Fear Gauge’ Rears Up As Brexit Vote Approaches” – Mark DeCambre, Market Watch

“VIX Up. Stocks Swings Down. Investors Expect Trouble Beyond Brexit” – Saumya Vaishampayan

“VIX Shows Traders Are Worried About A Lot More Than ‘Brexit’ – Chris Dieterich, Barron’s

“VIX Tumbles As Brexit Fears Recede” – Chris Dieterich, Barron’s

“VIX Logs Highest Close Since Feb As Brexit Looms” – Financial Times

“What the VIX Is Telling Us About A Post-Brexit Move” – Simon Maierhofer, Market Watch


A Quick Thought on VIX Price Action Today

I’m in New York today and have been in contact with several different types of market participants. A common theme in the conversations I’ve had about today’s action was that VIX seemed too low relative to the panic going on in global equity markets. VIX in the low 20’s didn’t have the feel of a market panic equivalent to the S&P 500 losing over 3%. However, it is worth noting that VIX moved higher overnight, but has been hovering in a range most of the day. The equity markets adjusted to the reality of Britain moving out of the EU, but did so in sort of an orderly way. I can only venture to guess whether VIX not overreacting had a calming effect and gave buyers confidence in the markets or if the equity markets gapping down, but then not gapping lower resulted in VIX not climbing to higher levels. This is a debate that you can take the either side of. I do know that VIX adjusted higher and the equity market adjusted lower and VIX did not indicate full blown panic in the move.