Primer on Options and Volatility Trading at RMC Asia

The first presentation at the first ever CBOE Risk Management Conference to be held in Asia kicked off with a primer on options and volatility delivered by me.  I couldn’t figure out if I wanted to refer to myself in the third person or err on the side of possibly sounding presumptuous.  I decided to go with the latter.

Over the course of 75 minutes I discussed several things that relate to the option market with a focus on volatility and VIX related derivatives.  My presentation could probably fill chapter or two in a book on VIX, so I’m sticking with the highlights.  One of my mentors, Marty Kearney, once told me the best presentations give people three takeaways.   So that’s my plan for this blog.

First, but last during the presentation, is that it appears we may be shifting from a low volatility regime, in place over the past few years to a high volatility regime.  The chart below is from my presentation and shows the range for VIX by year from 1990 through the third quarter of this year.  I know technical analysis is shunned by many market participants, but it sure appears that a third bottoming of volatility appears to be coming to an end on the chart below.


Second, I pointed out that historically, VIX and the S&P 500 move in opposite directions on just under 80% of trading days.  So that means from January 1991 to September 2015 that 1 in 5 days the S&P 500 and VIX moved in the same direction.  Sometimes the press or VIX tourists may make a big deal out of both the S&P 500 and VIX rising on the same day, I liked noting that this isn’t exactly something to get all excited about.

Finally, I got to talk about VIX Weeklys futures and how this relatively new version of VIX futures is behaving as we had hoped around CBOE.   The chart below compares five minute price action for VIX and the next expiring VIX future contract for the first three months that VIX Weeklys futures have been trading.  The Weeklys have been tracking the spot index very closely.  So far the price behavior is what we had hoped and expected.

RMC 12