Volatility ETF Twice Nominated for 2016 ETF.com Awards

We all have our morning rituals and one of mine involves checking the daily ETF.Com email I receive at CBOE.  The top story was the nominations for the annual ETF.Com awards ceremony which is scheduled for March 30th in New York.  I went through the list of nominees highlighting partners of CBOE and was delighted to see the REX VolMAXX Long VIX Weekly Futures Strategy ETF (Ticker: VMAX) recognized with a nomination in two categories.  VMAX has been nominated for both Most Innovative New ETF and Best New Alternatives ETF.  We are all aware of the suite of VIX related exchange traded notes and funds that have been available for some time, but VMAX has entered the market focusing on a niche that is relatively new as well.

As the name indicates VMAX gives owners exposure to near dated or Weekly VIX Futures.  The fund was launched in May of 2016, a few months after the introduction of VIX Weekly Futures in 2015.   Note on the chart below that the beta of VIX futures relative to spot VIX increases dramatically as the contract nears expiration.

The motivation for launch VMAX was to give investors exposure to nearer dated VIX Futures which move more in line with spot VIX than longer dated VIX futures contracts.  I sort of expected VMAX to be nominated in the Best New Alternative category but believe the Most Innovative New ETF nod is well deserved.


To learn more about the ETF.Com awards visit www.etf.com and to learn more about the REX VolMAXX Long VIX Weekly Futures Strategy ETF visit www.volmaxx.com

Jesse Livermore: Lessons From the Greatest Trader

From the Mind of the Greatest Trader – Jesse Livermore Starting the new year is a great time to reflect on what happened on the past but also to look ahead of what’s to come.  My reflection is about my trading history and analyzing where I can become better.  I also look to others to see where I can pick up ideas to improve.  One of my favorite trading books of all time is Reminiscence of a Stock Operator by Edwin Lefevre.  It is the true life story of Jesse Livermore, a stock operator who thrived at trading in bucket shops and brokerages at the turn of the 20th century.  He was truly a gifted man, making millions trading on other’s emotions; he was ahead of his time, hands down the greatest trader of his generation.  I pull this book out frequently to review his timeless lessons of trading, psychology and risk management.  Below is a great summary from stock confidential.    The best part of this below is toward the bottom with his quotes – as applicable today as it was 100 years ago.  Hope you enjoy this piece as much as I did!

They Don’t Make Stock Gurus Like THIS Anymore!

Livermore Why mention some “old school” trader from the turn of the 19th century? Because his theories on trading breakout stocks are still used by some of the best traders today, including myself. You and I can still learn a LOT from a guy who had no access to today’s technologically-advanced trading tools, and still managed to make $3 million in a single day. (How many traders do you know that can make $3 million even in a YEAR?) Such was the accomplishment of 30-year-old Jesse Livermore.

1907 seems so remote to us now in these days of streaming quotes, charting software and computerized trading. Yet that’s what makes Jesse Livermore’s stock trading successes so awe-inspiring today.

As revolutionary as this early-day stock guru’s approach to trading was for his time, in truth, Jesse’s stock trading “secrets” just came down to good, sound basics. His success stands as a testament to the fact that the further we wander away from trading breakout stocks and a simple, disciplined approach to trading stocks, the less success we’re inclined to have. Just how unconventional was Jesse Livermore? Take a look:

He believed in trading top quality stocks, not “weaker sister” stocks.     A stock hitting new highs was a signal of a stock’s strength to Livermore, and meant the stock had broken through its overhead supply of sellers. Today, we call this a “breakout stock”.     He was one of the first stock traders to realize that stocks tend to move in industry groups not in isolation.     Unlike today’s self-appointed stock pick gurus, Jesse Livermore was a humble student of the market, and never considered himself a master.

Livermore was ever conscious of the part one’s psychology played in achieving stock trading success, so he never spoke about what he was doing to anybody, and actually was known to ask people to keep their stock tips to themselves! He was so protective of his trading psychology that he would not even use the words “bullish” or “bearish,” thinking they would create an emotional mindset that he wanted to avoid.

Three of the rules he followed included:

  • Decide the overall direction of the market, making sure of the market’s overall trend;
  • Probe the market by trading small positions first, rather than rushing in all at once; and
  • Exercise patience, letting a stock’s move play out, while paying attention to all the facts, instead of emotions.

Here are just a few of this legendary stock guru’s ideas on trading breakout stocks in his own words:

“I absolutely believe that price movement patterns are repeated and appear over and over, with slight variations. That’s because humans drive the stocks, and human nature never changes.”    

“Keep the number of stocks you own to a controllable number.”    

“Take your losses quickly and don’t brood about them. Try to learn from them, but mistakes are inevitable as death.”     More

Block Trade Analysis – XLI Bull Put Spreads from Friday

Since the election of Donald Trump the stock market has been on a bullish run.  One sector that may benefit from the new administration is the industrial sector, whether that is due to an increase in infrastructure spending or through an increase in domestic manufacturing.  On Friday, last week there were a couple of bullish option trades that came into the Industrial Selector Sector SPDR Fund (XLI) ETF option market worth taking a look at.

Before discussing these two trades I wanted to point out exactly what exposure XLI give a holder.  there’s no better resource than ETF.Com to get a quick overview of what is held by an ETF.  The figure below is a list of the top 10 holdings for XLI.


Contrasting SPX and VIX – MLK Weekend 2016 and 2017

2016 was a year lots of people would like to forget for a variety of reasons.  Personally, I had a great year and didn’t know any celebrities who will be celebrated posthumously at the various spring award shows.  If we go back 52 weeks to MLK weekend in 2016 the markets were about as opposite as they could be relative to where we are today.

As a quick reminder, many market participants were nervous going into 2016, we had just experienced our first interest rate hike in years and the equity markets had been on a bullish run since the end of the Great Financial Crisis.  The stock market was proving the bears right as the S&P 500 was down by 8% and VIX had risen to 27.02.  Neither had put in their respective low and high for 2016 as there were a few more weeks to go before the S&P 500 bottomed and VIX peaked for the year.  In present time the S&P 500 is up slightly and VIX has broken the 2016 closing low of 11.27 twice finishing last week at 11.23.  If there is any doubt market expectations at this point in 2016 are a complete contrast with 2017 just note the VIX term structure comparison below.


The remaining 50 weeks of 2016 resulted in VIX putting in an average close lower than the previous year and the S&P 500 rebounding to record levels.  It’s been a quiet first couple of weeks in 2017, however, a new sheriff is in town (Trump) in a few days and I have this funny feeling that the low volatility we’ve experienced for the first couple of weeks this year may not be here to stay.

The Weekly Options News Roundup – 1/15/2017

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.

Data Exchange
CBOE announced on January 6, that all its historical market data formerly operated by Market Data Express (MDX) has been migrated to the CBOE Livevol Data Shop.  This action combines a comprehensive source of options, equity and exchange-traded fund (ETF) data with the customizable services offered by CBOE Livevol under one umbrella.

For more information, see the press release.

“CBOE Historical Data Subscription Service Migrates to CBOE Livevol Data Shop” – Hedgeweek

“CBOE’s Historical Data Now on LIVEVOL Data Shop” – John D’Antona Jr., Traders Magazine

Next Vest-ment
This past Wednesday, CBOE Vest announced the launch of the CBOE Vest S&P 500 Enhanced Growth Strategy Fund (ENGIX) which tracks the CBOE S&P 500 Enhanced Growth Index Balanced Series (SPEN).   The third in a series of mutual funds launched by CBOE Vest, ENGIX is designed to enhance growth while keeping losses in line with the market and limiting returns to be below a cap.  By using options, the Enhanced Growth Strategy employed by the fund seeks to deliver 2x upside performance on the S&P 500 up to a variable cap, without additional leverage on the downside.

For more information on CBOE Vest products, visit https://www.cboevest.com/en-us/.

“Vest Launches ARN-Like S&P Mutual Fund” – Daniel O’Leary, EQ Derivatives

VIX Fix: Volatility in Tweets
Markets retreated this week, as the Dow fell further from the much-anticipated 20,000 milestone.  In tandem, the CBOE Volatility Index (VIX) was flat on the week, hovering in the mid-11 range, well below its average daily close of 15.8 in 2016, and its historical average of 19.7.   It seems the only volatility that could be found anywhere was in tweets from the new President-Elect, which has been pointed out as a factor in this week’s market decline.  Although volatility may be down, it should not be counted out.  We could be just 140 characters away from the next market moving event.

“Expect 2017 to be More Volatile than Last Year” – Teresa Rivas, Barron’s

“What the VIX Fear Gauge is Telling the Markets” – Charles Bovaird, Investopedia

“Single Stock Option Demand Propping Up VIX, Index Option Demand” – Daniel O’Leary, EQ Derivatives

“The VIX Fix: The VIX Spread Trade” – Jeff Klearman, Seeking Alpha

“VIX Update: How Low Can the VIX Go” – Seeking Alpha

“CBOE Volatility Index (VIX) is Low, But Don’t Expect it to Stay That Way Forever” – Gavin McMaster, Insider Monkey

Weekend Review of Russell 2000 Options and Volatility – 1/9 – 1/13

It was a quiet week for the markets with a lack of economic data, the earnings calendar being light (that changes next week) and our president elect speaking to the press but not making statements to impact the equity markets too much.  The result was a 0.35% gain for the Russell 2000 (RUT) and a drop of 0.04% for large cap stocks as represented by the Russell 1000 (RUI).


Earnings Week of 1/17 – 1/20

It’s a holiday shortened week, but it’s also a week where earnings season starts to kick into high gear.  As always the data below is based on the last three years of earnings results unless the ticker is in italics.  The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings.  Finally, double check the earnings dates as not all were confirmed.

Getting the 2017 Party Started

The cliffhanger last time involved the $6.50 put for UVXY expiring this Friday, January 13th.  I had sold twenty contracts on January 4th for premium received of $0.18 each.  It turns out that I got nervous about this put when UVXY touched 6.57 later that day.  I knew I had time, but I also believed that the nature of UVXY was not on my side, and I began plotting to trade out of these options and eventually replace them with more advantageous ones.

It turns out I didn’t have to wait long.  See the dip in option price the next day wherein I and apparently just a few others traded at eighteen cents, thus ending my obligation with this option before the price took off again for higher ground through today.



33rd Annual CBOE RMC Set for March 8 – 10

As we turn to a New Year, we all look forward to certain things.  For me, near the top of that list is the spring edition of CBOE’s Risk Management Conference (CBOE RMC).  We now have three versions of RMC with the US version taking place in a warm weather venue each spring for the past 32 years.  The 33rd Annual CBOE RMC will be held in Dana Point, California at the Monarch Beach Resort from March 8th to March 10th.  Although historical information is never a guarantee of future results, I did check the historical average weather conditions for those three days and the indication is 70 degree weather and sunny skies.

The schedule is still coming together and CBOE plans to post the full lineup of speakers by January 25th.  As always the agenda will include a wide variety of practitioners who will share their insight with respect to the use of derivatives and volatility as a tradable asset.

Another date to keep in mind is February 15th which is the cutoff date to receive the special CBOE RMC hotel room rate.  This is not the first time CBOE RMC has been held at the Monarch Beach Resort, but according to one CBOE employee who is in the know, the place has recently been renovated which will result in a combination of an excellent venue, useful information, and of course perfect weather.

I consider myself fortunate in that attending the various CBOE RMC events is part of my job.  I always come away with several market related and risk management oriented topics to explore that keep me busy for weeks after the conference ends.  If you want to learn more about all three versions of CBOE RMC visit www.cboermc.com or feel free to shoot an email to institutional@cboe.com


Five Volatility Market Lessons from 2016

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

Number 1 – Non-Fundamental Volatility Spikes

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



Technical Resistance in AMZN?

It’s pretty clear that AMZN has been in a buy mode recently.  It is possible that we do see even higher prices in this stock.  I do however want to throw up a caution flag here for a couple of reasons.  First, we have met the initial upside targets off our last trade setup in this stock.  Second, we are moving into a couple of key resistance clusters defined by Fibonacci price relationships.  They come in at 801.31-807.55 and then 813.95-819.00.  Third, I’m seeing a cluster of 6 Fibonacci time relationships that come due in the next few sessions between 1/10-13.  Since AMZN is trading straight UP into these cycles, they warn of a possible reversal (at least a tradable pullback) in the coming sessions.  Anyone who is long AMZN should at a minimum ratchet up stops on current long positions.  Shorter term nimble traders may also look at possible shorts against these same parameters, but only if you see clear sell signals signals that suggest it’s worth placing a bet on the short side or NOT!!

For more information on triggers click here:  http://www.fibonacciqueen.com/fibqueenguidelines.pdf

Record Volume and Open Interest in 2016 for CBOE Index Products

CBOE index products continue to attract growing interest from investors who wish to manage the income and volatility in their portfolios. A recent press release by CBOE Holdings noted that —
“… Several trading records were set [in 2016]. Total volume and average daily volume (ADV) in index options trading at CBOE reached new all-time highs for the fourth consecutive year in 2016 with 430.7 million and 1.7 million contracts, respectively, each up 6 percent from 2015. Total volume and ADV in S&P 500® Index (SPX) options trading at CBOE reached new all-time highs for the fourth consecutive year in 2016 with 258 million and 1 million contracts, respectively, each up 9 percent from 2015. Trading in CBOE Volatility Index® (VIX®) futures at CFE set new records for total volume and ADV for the seventh consecutive year in 2016 with 60.2 million and 238,773 contracts, respectively, up 16 percent from 2015. VIX futures at CFE set record total volume in non-U.S. trading hours with 6.6 million contracts, up 46 percent from 2015’s 4.6 million contracts. … “


All-time records for SPX options were set in 2016 for both average daily volume (which rose 9% to 1,023,623 contracts) and year-end open interest (which rose 18% to more than 12.9 million contracts).


In 2016 average daily volume for VIX futures rose 16% to a new record of 238,773 contracts.


A November 9 press release noted that –

“ … CBOE Futures Exchange, LLC (CFE®) today announced record volume was set in futures contracts on the CBOE Volatility Index® (VIX® Index) traded in non-U.S. trading hours with an estimated 263,663 contracts changing hands. This record surpasses the previous single-day record of 235,141 contracts set during the overnight session on June 24, 2016, when U.K. voters decided that Britain should leave the European Union, an event also known as “Brexit.” … “

On the CFE, the all-time record volume days during non-U.S. trading hours were —
• 263,663 9-Nov-2016
• 235,141 24-Jun-2016
• 140,811 24-Aug-2015
• 78,756 14-Jun-2016
• 70,123 16-Oct-2014
To learn more about round-the clock trading during Extended Trading Hours, visit www.cboe.com/ETH.

Master the Four Fears of Trading – Part 2

Last week we discussed two of the four fears of trading, specifically the ‘fear of missing out’ and the ‘fear of loss’, today we’ll discuss the ‘fear of being wrong’ and the ‘fear of letting a gain turn into a loss’.  Famed trader psychologist Mark Douglas talked about these fears in his stellar book ‘Trading in the Zone’.  As traders and investors we all become gripped by the violent reactions of our own emotions.

There is nobody who is immune to emotional responses to changes in wealth.  We are all wired the same, competitive animal spirits to accumulate as much as we can, lose as little as possible.  We live on the spectrum of fear and greed.  On the one end, we fear losing our money/capital to forces we can/cannot control.  Yet, we are all greedy when it comes to accumulation opportunities, we want more and are never satisfied, or say ‘enough’.

Conquering the four fears is a monumental task that takes learning, discipline, repetition and focus.  Many investors find themselves swirling in a vortex of negativity and are gripped by fear, often forgetting what is the right thing to do.  This will cost you dearly: Your capital and opportunity, which are few/far between.  Let’s see how we can understand fears of being wrong and letting a gain turn into a loss and turn the tables of fear into acceptance.

Fear of being wrong creates a crisis in confidence.  While we like to preach ‘trading is not a game of perfect’, let’s all understand we cannot actually grow our accounts if we are always wrong.  If our system of trading or investing is not working then we have to change, find a new one or style that will work.  Have you found yourself in a bad trade and cannot seem to get out of it?  Been there, done that so don’t think you are alone.  Being wrong is not all that bad, but staying wrong is a problem.

The joy of winning is like no other, yet we have all experienced how it feels to have the rug pulled out from under us.  The fear of turning a win into a loss creates a feeling of devastation and despair in our minds.  Nevermind the fear of loss – this one fear can paralyze our minds into a state where we just want to give up entirely.  The mind influentially powerful, but it works both ways.  Be wrong – it’s quite alright, but take the next trade and make adjustments.

This fear can be conquered quite easily but the focus on past results often get in the way of good judgment.  We always talk about taking profits regularly when you have them.  No matter how big or small, take some winners off the table.  This creates an empowering feel for trading success, which compounds onto the next trade, and the next one. Soon you will find yourself on the winning side of the trade far more often than not – and your account will be growing, your focus in full motion.