This Week in Emerging Market Volatility – 9/27/2013

Both the iShares Emerging Markets (EEM – 41.24) and iShares Brazil Capped ETFs (EWZ – 47.94) were lower on the week.  In an unusual twist both volatility indexes based on the options trading on these two ETFs were lower as well.  Both have been elevated relative to VIX this past year so they have some room to give.  Also the recent move up in VIX may be more ‘country specific’ as there are questions about a federal budget being in place this next week.  The one thing that really stood out for me in this space last week was the new shape of the VXEWZ curve.  The Brazilian stock market and economy has had a tough time in 2013.  The result has been high volatility and frequent backwardation in the curve.  This week appeared to signal a return to normalcy as the shape of the curve is in defined contango.  Maybe the volatility guys are finally convinced that the move up in EWZ that has occurred since summer has legs.

VXEEM VXEWZ

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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