The Weekly Options News Roundup – 9/25/2016

2016 Risk Management Conference Europe
Tomorrow kicks off the 5th annual CBOE Risk Management Conference Europe at the Powerscourt Hotel in County Wicklow, Ireland.  The industry’s top traders, strategists and researchers will convene to discuss the latest products and strategies for managing risks, that enhance yields and lower portfolio volatility. For more information, see

“2016 CBOE Risk Management Conference Europe” – Hedgeweek

Options R.O.I.
Earlier this week, CBOE along with Wilshire Analytics, the investment technology foundation of Wilshire Associates Inc., released an analysis of the performance of options-based benchmark indexes covering a 30-year period. The results of the study revealed that the use of options-based benchmark indexes with premium selling or buying produce higher absolute returns, lower volatility, less downside risk, increased market capacity and liquidity, and stronger benefits for pension plan allocations.  For more information see CBOE Benchmarks. 

“Options Indices Offered ‘Noteworthy’ Returns Over 30 Years, Says Study” – Hedgeweek

“Retail Traders Should Buy Options During Volatile Markets” – Ellen Chang, The Street

CurveGlobal Fires Up Engines
After another successful week of testing, CurveGlobal is set to officially launch Monday, September 26th.  CurveGlobal is a new venue for trading interest rate futures backed by the London Stock Exchange, CBOE and several major dealer banks.  The platform aims to cater to those market participants looking for more capital efficient ways to trade and hedge these products.

“LSE Passes Final Test Ahead Of Sept. 26 Curve Launch” – Luke Jeffs, FOW

“Curve To Launch With Four ISVs, Seven Banks” – Luke Jeffs, FOW

VIX Fix: Volatility Averted  
Stocks ended lower on Friday falling by 130 points as momentum from inaction by the Fed dissipated.  Volatility seemed poised to make its triumphant reentrance in the market but after a short-lived spike the VIX Index retreated back to near all-time lows, now around the 12 level.  But as the U.S. Election date draws near, and political uncertainty looms, volatility may be down but not out.

“’Tantrum’ Threat Fades” – Min Zeng and Sam GoldFarb, Wall Street Journal

“Volatility Trade Flames Out As VIX-Loving Bears Cash In On Notes” – Dani Burger, Bloomberg

“The Return Of Volatility” – Chris Beauchamp, IG

“The Markets “Gear Gauge” Has Collapsed Following The Federal Reserve’s Policy Meeting” – David Cottle, News Markets

Weekend Review – Russell 2000 Options and Volatility – 9/19 – 9/23

The relative performance of small caps to large caps has been phenomenal for those who picked the equity market bottom back in February.  This past week the Russell 2000 (RUT) almost doubled the performance of the large cap focused Russell 1000 (RUI) rising 2.56% versus 1.30%.  This places RUT at up 10.45% for 2016 while RUI is up a still respectable 6.06%.  The really amazing numbers shows up when we look at what RUT has done relative to RUI since February 11th of this year.  RUT is up 31.6% since the equity market bottomed out while RUI is up 19.3%.


VIX took it on the chin last week as the equity market positively digested the FOMC announcement and subsequent Janet Yellen presser.  The CBOE Russell 2000 Volatility Index (RVX) also dropped, but not to the extent of VIX which resulted in a spike for the RVX / VIX premium.

Weekend Review – VIX Futures and Options – 9/19 – 9/23

VIX reacted to the post FOMC rally by giving up just over 20% last week.  The standard September contract went off the board leaving October to take over as the front month.  With a little time until October expiration (10/19) the result has been resumption of pretty steep contango.  Of course there are some potentially market moving events between now and the end of the year so VIX futures bracing for some sort of spike may be expected.

VIX Contango


New Heat Map Shows Less Downside for BXMD and PUT Indexes – Blog #1 on the Wilshire Paper

Wilshire Associates recently was ranked as one of the world’s ten largest investment consultants due to the fact that it had more than $1 trillion in worldwide institutional assets under advisement, according to the survey published in the Nov. 30, 2015 issue of Pensions & Investments.

A new study – “Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis” – was released this week. The study was commissioned by CBOE and authored by Wilshire Analytics’ Applied Research Group. It is the first major study that surveys 30 years of data related to benchmarks engaged in the buying and/or selling of index options.
Wilshire Analytics analyzed the performance of several indexes over a period of 30 years, from June 30, 1986 through June 30, 2016, including five indexes that sell and/or buy options on the S&P 500® (SPX) Index:

• CBOE S&P 500 BuyWrite Index (BXM)
• CBOE S&P 500 30-Delta BuyWrite Index (BXMD)
• CBOE S&P 500 Zero-Cost Put Spread Collar Index (CLLZ)
• CBOE S&P 500 5% Put Protection Index (PPUT)
• CBOE S&P 500 PutWrite Index (PUT)

The performance of these indexes was compared with certain other key stock, bond and commodity indexes that represent asset classes typically found in the investment portfolios of institutions and individual investors.


A new heat map is presented as one of the 13 exhibits in the Wilshire paper.

The “heat map” above uses color to rank returns across asset class by year (within each column).  Over the past 15 years, option-writing strategies, particularly the BXMD and PUT strategies, typically had above-average returns and were rarely among the lower-performing asset classes.  Other asset classes were occasionally top performers but also were ranked at or near the bottom more than once. Past performance is not predictive of future returns.  Sources:  Bloomberg, CBOE, St. Louis Federal Reserve Bank and Wilshire Associates.


Key findings of the 30-year study include:

  • Higher Absolute and Risk-Adjusted Returns: Two indexes that sold SPX options every month to collect option premium income – PUT and BXMD – both had higher absolute returns and higher risk-adjusted returns than the other indexes studied.
  • Lower Volatility: Each of the five option-based indexes had lower volatility than all the other indexes included in the study, other than the fixed-income index.
  • Less Downside Risk: The maximum drawdown for the options-based indexes was 24 percent lower, on average, than for the S&P 500 Index.
  • Market Capacity and Liquidity: The notional value of SPX options’ average daily volume grew significantly over the last 10 years; it was more than $200 billion for the 12 months ended June 2016, the most recent year studied.
  • Pension Plan Allocations: Analysis of actual pension plan allocations suggests plan sponsors would have benefited from the addition of index-based buy-write option strategies.


More Blogs on new research papers will be posted at in the near future. For links to the entire new paper and more information about CBOE benchmark indexes, please visit Weekly Market Outlook – Fed Wednesday Looms

As much as the bulls tried last week, they could never get the market back above a key hurdle. The threat of a September rate hike just continued to circulate, and never gave the buyers a chance to get traction. Then again, the bears didn’t make any progress either. They had several opportunities to deal a short-term death blow to the market, but could never get the job done.

With the a key rate hike decision looming on Wednesday, odds are good traders aren’t going to make any major push before then. After that is a different story. There’s no clarity as to which direction that may be, but the good news is, the make-or-break lines — bullish as well as bearish — are crystal clear.

We’ll look at the matter from both angles after a quick run-down of last week’s and this week’s economic news.

Economic Data

Last week was loaded with economic reports, though collectively, they paint a confused picture leading up to this week’s Federal Reserve meeting and interest rate decision.

The big influence on the FOMC at this time is inflation — the committee wants to keep it tame without blowing out the economy’s pilot light. Trouble is, it’s not clear how much inflation we’re facing. Producer prices remain relatively tame (and rose less than expected in August), while consumer prices were firm, and jumped more than expected. Either way, all the annualized inflation numbers continue to rise.

Annualized Inflation Chart


Source: Thomson Reuters

If the deciding factor for Janet Yellen is retail sales, she’s likely leaning toward NOT raising interest rates this month. Last month, retail spending fell 0.3% counting cars, and fell 0.1% when taking automobiles out of the equation.

Retail Sales Chart


Source: Thomson Reuters

On the other hand, last month’s consumer spending was considerably greater than spending seen in August of 2015. The year-over-year growth rates — arguably a more meaningful comparison — continue to taper off, but growth is still growth.

Finally, last month’s industrial activity and capacity utilization tapered off a bit as well, right when it looked like both were ready to heat up. We’re not in dire straits yet, but the market needs some help on this front.

Capacity Utilization and Industrial Productivity Chart


Source: Thomson Reuters

Everything else is on the following grid:

Economic Calendar




Central Bankers Paying Lip Service

How much longer must we pay heed to lip service of central bankers, who continuous whine and plead their case but seem unable to pull the trigger on a policy directive?  Just over a week ago some Fed Governors came out and sent obligatory warnings to markets saying ‘rate hikes may come sooner than you think, so take heed’.  Just days later, a couple of other Fed Governors turned that around 180 degrees and said ‘not so fast on a rate hike, let’s watch the data’.  This recent comment has been bounced around more often than a basketball over the last year or so, and has caused market turbulence.

If there is one thing markets hate it is uncertainty, and currently the opinion of Fed policy is showing a lack of commitment.  Yet, the markets hang in the balance on every word and comment when the calendar comes close.  Since 2009 the markets have been bowing at the altar to the Fed, and other central bankers have joined in the fray.  More recently the back n’ forth action has jerked markets around and created some volatility – we saw that on September 9 when markets fell that Friday by 2% or more, wiping out two months worth of gains in just one day.

To some extent each meeting of central bankers is carefully scrutinized as is every comment or speech.  Remember how much attention was given to Chair Yellen’s speech in Jackson Hole last month, only to be met with yawns.  Markets rose modestly just following that conference.  Back in May we had several Fed Governors come out and declare a rate hike was likely coming in June, but then back-tracked when the jobs report for May came in quite weak. So much for that!   Markets soared right up until Brexit.

Do central bankers have the advantage other than setting policy?  Certainly that matters, but the economic data isn’t any different for them as it is for you and me, so why can’t we just interpret the facts rather than trying to decode opinions?  Further, while the committee is certainly aggravated about being at/near the zero bound for so long, they realize the fiscal element is the missing piece of the puzzle.

They won’t just raise rates for show, which happened last December – look what happened then, a market drop at the beginning of the year and 1% GDP growth in the first half.    Former Chair Ben Bernanke once said ‘monetary policy is not a panacea’, meaning it cannot cure all ills and ignite growth but it could certain stop a raging fire with a giant hose.  Fiscal spending could re-charge the economy and increase growth substantially, but that is a political issue altogether.

The Weekly Options News Roundup – 9/18/2016

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.

Global Index Options Emerging
On Thursday, CBOE announced plans to launch options on the FTSE Emerging Index (FTEM) beginning September 26th.   The FTSE Emerging index is a market-capitalization weighted index that represents the performance of large and mid-cap companies from advanced and secondary emerging markets.   For more information, see the press release or visit,

“CBOE to Launch Options on FTSE Emerging Index” – Daniel O’Leary, EQ Derivatives

“CBOE to Introduce Options on FTSE Emerging Index” – Aziz Abdel-Qader, Finance Magnates

CURVEGLOBAL Launch In 10…9…8…
The countdown for the September 26th launch date of CurveGlobal has finally begun. With its official opening just 8 days away, the venue underwent successful testing of the technology and infrastructure that will support the CurveGlobal trading platform.  In addition, it has begun to unveil its trading and clearing fees.

“LSE Passes First Client Testing With CurveGlobal” – Luke Jeffs, FOW

“LSE Curve Undercuts Rivals on Fees, Blocks” – Luke Jeffs, FOW

VIX Fix: Breath of Fresh Volatility
After a long lull, volatility has seemingly ended its summer vacation, returning to markets in the past week.   The Dow Jones saw several days of triple-digit moves, while the CBOE Volatility Index (VIX Index) remained at its highest levels since June, now around the 15 level. The catalyst for this fresh round of volatility stems from uncertainty in Fed direction on interest rates and future political uncertainty.  As Election Day draws near and an interest rate hike is still on the table, volatility may be ready to get this party started.

“When Volatility Spikes, Opportunities Abound” – Steven M. Sears, Barron’s

“Volume in the Volatility Market Absolutely Exploded During Tuesday’s Rout” – Lu Wang and Oliver Renick, Bloomberg

“Volatility Spike Brings Abrupt End to Markets’ Summer Vacation” – Inyoung Hwang, Paul Vigna and Aaron Kuriloff

“Volatility Recedes as Markets Bounce Back” – Ben Eisen, Wall Street Journal

“Volatility Puts Some Funds at Risk” – Corrie Driebusch and Aaron Kuriloff, Wall Street Journal

“Wall Street’s ‘Fear Gauge’ Shows It’s About to Get Wild in the Stock Market”- Mark Decambre, Market Watch

“Volatility Curve Suspiciously Quiet Leaves Analysts on Edge” – Oliver Renick, Bloomberg

Weekend Review – Russell 2000 Options and Volatility – 9/12 – 9/16

Both the Russell 100 and Russel 2000 were up 0.48% last week.  For the year RUT maintains a lead of 3.10% (7.83% vs. 4.73%).


Both VIX and the CBOE Russell 2000 Volatility index (RVX) lost value last week.   This took the RVX / VIX premium down to under 20% for the first time since June.


First thing Friday, with the Russell 2000 around 1225, someone came into the RUT pit with a trade that is targeting a fairly wide range for the Russell 2000 at the end of the month.  The trade is an Iron Condor which sold the RUT Sep 30th 1185 Put for 8.53 and purchased the RUT Sep 30th 1180 Put at 7.67.  On the upside this trade sold the RUT Sep 30th 1260 Call at 2.95 and purchased the Sep 30th 1265 Call for 2.23.  After doing on the math this trade results in a credit of 1.58.


As long as the RUT is not up more than 4.5% or 3.3% lower this trade will be ok, a big outlier move and the resulting loss will be 3.42.

Back to VIX Specials

Summer didn’t draw to a close without telling us it was doing so.  If any VIX-watchers were sleeping, they’re awake now. Most of the summer seemed flat and long as a football field, and while that should’ve been easy, I made it difficult for myself by trying from July 19th onward to profit from something that simply wasn’t happening just because I wished it and staked it out repeatedly:  The return of any kind of volatility or at least the end of the silent, somnolent, stubbornly-immobile VIX.

As a review I noted on this chart the nine times I’ve attempted to get tickets to the early screening of the VIX show; five of them have already been detailed in past blog entries so I’ll describe them only briefly.  The remaining four will be explained.


More Weekly Market Outlook – Key Levels To Watch Here

Things were going fine last week… until Friday, when it all came completely unraveled.  Friday’s 2.45% stumble in the S&P 500 (SPX) (SPY) was not only the biggest single-day loss since June when the United Kingdom voted to leave the European Union, it carried the market to its lowest close since early-July. Some key support levels were snapped too.

Bad news? Maybe, though ironically, the sheer size of Friday’s meltdown has a shot at spurring a dead-cat bounce (not unlike the post-Brexit vote plunge did). The question is whether or not such a bounce can rekindle the bigger uptrend. Friday was awful, but a 2.45% stumble isn’t enough in its own to truly hit the “reset” button for stocks.

We’ll look at it in detail below, after examining last week’s and this week’s key economic news.

Economic Data

There wasn’t much in the way of economic data posted last week. In fact, the only items of interest were last month’s ISM Services Index and July’s job openings (JOLTS) report.

The ISM Services Index rounds out the prior week’s ISM Manufacturing number. Neither was impressive, but at least the ISM Service’s score didn’t break under the crucial 50 mark. All the same, the broad trends from both are concerning.

ISM Index Chart
Source: Thomson Reuters

As for the JOLTS (Job Openings and Labor Turnover Survey) trend, though it’s two months old, it’s still showing good strength.

JOLTS (Job Openings and Labor Turnover Survey) Chart
Source: Thomson Reuters

Everything else is on the following grid:

Economic Calendar


Market Volatility Does Live

With respect to the old Christmas folklore story, ‘Yes Virginia, there is Volatility‘.  The massive move this past Friday was not telegraphed, but then the first big move down hardly ever is.  Nobody rings a bell at the top, nor at the bottom.  Navigating the markets without the proper instruments becomes a very dicey proposition, and certainly with the right tools there is no guarantee of success, certainly with the timing.

For instance, the overbought sentiment has been frothy for several weeks, as those ‘expecting’ a big selloff to occur were denied over and over again.  We heard in late July that August would be ripe for such a rip, yet that never materialized.  Yet, the move lower on Friday wiped out gains earned over two months — in just one session!  The SPX 500 has not been this low since the early days of July, when markets were just recovering from a devastating fall post-Brexit.

The VIX rose sharply Friday, rising an unimpeded 38% to put it well over 17%, the highest level in months.  Certainly the complacency of low volatility was like a sleeper pill, yet players woke up today and found the markets on the defensive all day long.  The CNN Fear/greed index, solidly in ‘greed mode’ for months has now retreated to a ‘fear’ reading, the lowest since July.  Further, breadth was as bad as we’ve seen it, the McClellan oscillators succumbed to the pressure and fell sharply into nearly oversold (washout) territory.

What happened that made this day so bad we had hardly any buyers step up?  That is a change in character from recent market action, and quite disturbing as bonds were not even a safe haven.  The dollar was strong, gold was down, no place to hide.  This week is a wildcard, yet possibly points to downside due to the options expiration coming up on Friday.

So, we can certainly point to any reason we wish – Fed squawk about potential rate hikes coming (frankly, this is gibberish as the Fed is clearly trying to talk markets down as they did in May), or was it some dangerous behavior from N Korea, which we saw negatively effect markets in January.  Perhaps it was the lack of more punch by the Euro Central Bank.  Any reason is good enough to call a selloff, as we know there are million reasons to sell but only one reason to buy.  We can come up with a host of nefarious reasons or excuses, but we must react careful and focus on the action without bias.  It was nasty, plain and simple.

What does the future hold?  Naturally, we’re not market timers or guessers, rather we’ll just pay attention to what we see happening in front of us.  Believe me, holding bullish positions through a rout like Friday hurt more than skinned knee, but as we understand the magnitude and look for clues to the next move, we’ll be far better prepared and ready for the next run — up or down.