The Weekly Options News Roundup – 4/22/2016

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

Stellar Connections

Yesterday, CBOE Futures Exchange (CFE) announced that Stellar Trading Systems, a multi-asset trading software and services specialist, has established connectivity with  CFE.  This new link extends the exchange’s global footprint, broadening its reach with European and Asian investors.  For additional information, see the Press Release.

“Stellar Trading Systems Connects its Platform to CBOE Futures Exchange” – Steven Hatzakis, Finance Magnates

Up All Night with VIX

Last Friday, April 15, CBOE began dissemination of VIX Index values overnight, from 2:15 a.m. to 8:15 a.m. CT,  allowing investors  to gauge real-time volatility on a near-constant basis as global events unfold outside normal U.S. trading hours.

“CBOE’s Overnight VIX Dissemination Extends Global Push” – Renee Caruthers, Fierce Finance IT

Exotic Options “Flexercised”

Last month, CBOE introduced FLEX index options with Asian and Cliquet style settlement. These exotic options equip insurance professionals with another avenue of hedging, while providing  traditional exchange-traded benefits like enhanced price discovery, transparency and centralized clearing.

“CBOE Launches FLEX Option Indices” – Mike Kentz, International Financing Review

“Insurer Trades First Asian-Style CBOE FLEX Option” – Daniel O’Leary, EQ Derivatives

CurveGlobal Gears Up

In the third quarter of 2016, CurveGlobal, a new interest rate venture between the London Stock Exchange Group, CBOE and major dealer banks, is expected to make its debut.  Its new CEO, Michael Davie, recently explained how the initiative provides a new twist in the sector.

“CurveGlobal’s Michael Davie Looking for New Twist on Interest Rates” – John Lothian Newsletter

VIX FIX – Volatility Takes a Tumbleeeeeee!

Markets shrugged off concerns of macro issues as the Dow again topped 18,000 before retreating slightly today.  The VIX Index reached new lows for the year, falling to 12.50 during intra-day trading Wednesday.  Positions taken in the VIX indicate calmer markets in the near-term, but more volatile markets in the long term.

“Record VIX Bets Keep Surging as Wall Street Divines Mixed Signal” – Joseph Ciolli and Inyoung Hwang, Bloomberg


Continued Use of Listed Options Is Permitted by Final DOL Fiduciary Rules

Here is an update on the status of fiduciary rules recently finalized by the Department of Labor (DOL).


The DOL proposed on April 14, 2015 sweeping new regulations governing retirement accounts and IRAs which would exclude listed options and futures as permissible investments.


On April 6, 2016, the DOL released its final Conflict of Interest Rule and related exemptions, which are available at

The final rule and related exemptions permit all asset types, including exchange-traded options and futures, to be used in ERISA plans (401(k)) and IRAs. Compliance with the new requirements of the rule will not begin until April 2017, one year after the final rule is published in the Federal Register.

In a statement issued to the press, Edward T. Tilly, CEO of CBOE Holdings, noted that —

“The DOL Fiduciary Proposal raised significant issues for the U.S. options industry.  CBOE’s foremost concern was that the Proposal would eliminate the ability of investors to use exchange-traded options and futures in ERISA plans (401(k)) and IRAs.  We are pleased that in response to comments from various parties, including CBOE, our customers and the U.S. Securities Markets Coalition, the Proposal was modified to cover all asset types, including options and futures.  CBOE is grateful to members of Congress, from both sides of the aisle, who took the time to study this complex issue and to sign letters to the DOL in support of our position.  We are also grateful to the DOL for understanding and ultimately addressing the importance of allowing investors to continue to use exchange-traded options and futures in their retirement accounts and IRAs.”

In the April 9, 2016, Striking Price column in Barron’s, Steve Sears wrote —

Last week, the Labor Department backed away from a controversial plan to ban the use of options in retirement accounts. … The fiduciary rule, which becomes effective in April 2017, replaces a more permissive suitability rule that lets advisors deliver investment products as long as they reflect a client’s needs, goals, and financial wherewithal. … Now Wall Street’s lawyers are reading every page of the voluminous rule to make sure nothing interferes with the ability to trade options. The options industry, for instance, is trying to understand how, if at all, the fiduciary standard applies to investor education. … As we have averred many times, if we had to choose between more government regulation and investor education, we wouldn’t hesitate to select the latter. …


CBOE’s Comment Letter U.S. Securities Market Coalition Comment Letter Testimony on Proposed Conflict of Interest Rule July 29, 2015 DOL Letter from Members of Congress September 24, 2015 DOL Letter from Members of Congress


Some investors can ask “Can options add value to a retirement portfolio, or are options too risky for use in a retirement portfolio?” Today investors are confronted with challenges such as low interest rates, and at the webpage there is evidence (in white papers and performance benchmark indexes) which shows that certain options-based indexes, such as the CBOE S&P 500 30-Delta BuyWrite Index (BXMD), have had higher returns and lower volatility than the S&P 500 and MSCI EAFE indexes over a 29½-year period. Of course, not all options strategies outperform all the time, and some options strategies are used for leverage, but to see comparisons of benchmark indexes and fund performance, investors are invited to view these papers at


Thinking broadly about emerging markets

Apr 19, 2016  |  Raman Aylur Subramanian, Equity Applied Research, MSCI


Emerging-market equities revived in the first quarter after a rather dismal performance over the past five years. The pickup has left investors to wonder whether the gains might continue and to think anew about how to approach the segment.

A pickup in the performance of emerging markets


Economic development and the interconnectedness of financial markets have redefined the characteristics of emerging markets to such an extent that emerging markets now represent engines of global growth.

As the charts that follow show, emerging markets have contributed a growing share of gross domestic product worldwide and seem likely to add more than developing countries to growth globally for some time to come.

Emerging markets share of global gross domestic product (2006-2015)


Source: MSCI, World Bank

Projected economic growth worldwide


Source: IMF

A great divergence


Huge 1 x 2 VIX Call Spread Rolled Today

Things are relatively quiet today with the S&P 500 topping 2100 for the first time in months and then losing its grip on that round number. However, despite the relative quiet a big trade hit the VIX pit just before lunch time that has traders talking. There were four legs to the trade, which turned out to be a large volatility player rolling a position from May to July. I have no idea what they have against June.

A May spread was exited –

Sell 82,129 VIX May 23 Calls at 0.43 + Buy 164,242 VIX May 30 Calls at 0.17 for a 0.09 credit on each 1 x 2 spread

Then a July spread was entered into –

Buy 100,063 VIX Jul 23 Calls at 1.50 + Sell 200,126 July 30 Calls at 0.75 for even money on each 1 x 2 spread.

I did a little digging and it turns out the May 23 / 30 Spread was entered on March 2nd. I’m guessing the same trader purchased 82,129 May 23 Calls at 2.20 and sold 164,262 May 30 Calls at 1.10 for even money on that 1 x 2 spread. This means the exiting trade on the May spread was for a profit of 0.09.

By the way on March 2nd 75,631 VIX Mar 23 Calls were sold for 0.53 while 151,262 VIX Mar 30 Calls were purchased at 0.15 each for a credit of 0.23 per spread. I can keep going back in time, but I think everyone gets the picture now. I’ll keep a close eye on the VIX Jul 23 and VIX Jul 30 Calls and when something happens I’ll report back in this space.

Checking in on Overnight VIX Action

Last Friday CBOE began disseminating spot VIX quotes during what we lovingly call the Extended Hours Session (ETH). The first quote for VIX on April 15th occurred at 2:15 am Chicago time. I was elsewhere Friday but I did check the data periodically and everything seemed to be running smoothly.

I’m back at work today so I decided to take a look at how VIX did relative to the S&P 500 futures market from 2:15 am to 8:15 am Chicago time, looking at the price every 5 minutes. At 8:15 am the SPX option market closes for 15 minutes before resuming trading at 8:30 am so there’s also a break in VIX quotes.

5 Min Overnight VIX 4182016

VIX acted as we would expect. The futures were down and VIX was higher, as the S&P 500 futures rose VIX fell. That inverse relationship holds up, even when most of us are sleeping.  I can’t wait for the first ECB announcement or other overnight volatility ‘event’ to see how VIX acts at that time. Weekly Market Outlook – Valuation Concerns Creep In

The market didn’t end last week on a particularly bullish foot, but it doesn’t matter  – it started the week on such a bullish foot the S&P 500 (SPX) (SPY) was still up 1.6% for the week, and still above a fairly important resistance line. The strength still doesn’t outright guarantee stocks will keep moving higher. In fact, even if stocks were in a great technical position to keep edging higher, we’re once again running into a valuation headwind.

We’ll dissect all of it below, right after a closer look at last week’s and this week’s most important economic news.

Economic Data

Last week was a big one for economic news, but three items stood out as game-changers. Inflation was one of the biggies, though perhaps it would be more accurate to call it a lack of inflation.

Producer prices (with or without food and energy costs) fell 0.1% for the month. Overall producer inflation is -0.1% on an annual basis, and core annual inflation peeled back to 1.0%.

As for consumer inflation, it was up 0.1% on a core and a non-core basis. Annualized, overall inflation stands at 0.85%, and core inflation is 2.2%. Producer as well as consumer inflation ebbed last month before moving beyond the Fed’s tolerable levels, buying Janet Yellen a little time before the next rate hike became an outright requirement.

Inflation Chart


Source: Thomson Reuters

Retail sales, though, were solid. Overall they fell 0.3%, but on an ex-auto basis they actually grew 0.2% for the month. More important, regardless of the stratification in question — with the exception of gasoline stations — March-2016’s retail spending was stronger than March-2015’s tallies, and gasoline station sales only fell because gas prices remain subdued. This isn’t the sore spot it superficially seemed to be this past week.

Retail Sales Chart


Source: Thomson Reuters

Finally, industrial production and capacity utilization fell. Were it the first or eve second lull from both data sets, it might not be a concern. Both are clearly in long-term downtrends though, and with no end in sight, this is something that’s eventually going to take a toll.

Industrial Productivity and Capacity Utilization Chart


Source: Thomson Reuters

The bulk of this weakness in capacity usage and productivity stems from the meltdown of the energy sector (XLE), but the ripple effect may be starting to take hold. Something will have to change soon to sidestep a broad economic lull.

Everything else is on the following grid:

Economic Calendar More

Weekend Review – Russell 2000 Options and Volatility – 4/11 – 4/15

One of my favorite books when I was a wee lad was “The Little Engine That Could”. When I see the Russell 2000 (RUT) coming very close to going from red to green on the year that story pops in my mind as I personify RUT saying, “I think I can” with the small cap benchmark approaching unchanged on the year. Last week RUT was up by 3% which places the index just 44 basis points in the red for 2016. Pretty impressive for an index that was down as much as 16% on the year. Large cap stocks had a good week as well, but the Russell 1000 (RUI) lagged the Russell 2000 by about 1.3% rising nearly 1.7%.  It turns out 1.7% is also pretty close to where RUI is on the year. Since I mentioned the monster rebound in RUT I should note that at the worst point in 2016 RUI was down 11%. That kind of makes the run in RUT look a bit more impressive.


So despite what I say above about the impressive run in RUT compared to RUI, the CBOE Russell 2000 Volatility Index (RVX) move up to relative highs to the large cap focused VIX last week. On average RVX has been at about a 20% premium to VIX in 2016, but finished the week at nearly a 30% premium. The market is still nervous for small cap stocks and it shows in the chart below.


I’m going back to Monday for my RUT trade of the week. As the week began and RUT was around 1103 we had one of those out of the money put spread sellers come into the market. They used the standard AM settled May 20th RUT options to initiate a trade that works out even if RUT revisits 2016 lows. Specifically, they sold the RUT May 20th 920 Puts for 1.43 and purchased the RUT May 20th 900 Puts for 1.03 and a net credit of 0.35. There’s a risk of 19.65, but a lot has to go wrong for this result. The break-even level was 16.6% lower than where the market was at the time of the trade, it is also more than 20 points below the 2016 low for RUT. By name this is a bullish spread, but even a bearish market for the next few weeks will not result in a negative outcome for this trade.


The Weekly Options News Roundup – 4/15/2016

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

Target-Outome Investing. The Next Wave in Options Investing?

On Wednesday, CBOE announced that it has created a series of 13 “Buffer Protect Indexes,” the first in planned family of options-based strategy performance benchmarks that are designed to target the outcomes of specific investment strategies.

The CBOE S&P 500 Buffer Protect Indexes measure the performance of a hypothetical portfolio of S&P 500® Index (SPX) FLexible EXchange® (FLEX) options designed to provide annual targeted returns.

The strategy leverages options as risk management tools by enabling investors to limit downside losses while providing market participation up to a targeted level – essentially allowing investors to define their returns for the year.

For more information, go to

Department of Labor Fiduciary Proposal

Last week, the Department of Labor (DOL) released its final Conflict of Interest Rule and related exemptions. The final rule and related exemptions permit all asset types, including exchange-traded options and futures, to be used in ERISA plans (401(k)) and IRAs.

For more information on this issue, please refer to the CBOE Government Relations Website.

“New Fiduciary Rule Spares Options” – Steven M. Sears, Barron’s

VIX Becomes a Night Owl

At 2:15 this morning, CBOE began overnight dissemination of values of the CBOE Volatility Index (VIX Index),  providing investors real-time volatility information when news breaks overnight.  For more information, see the Press Release.

“CBOE to Start Overnight Dissemination of CBOE Volatility Index (VIX) on 15 April, Hedgeweek

“CBOE to Start Overnight Dissemination of CBOE Volatility Index (VIX) from April 15th” – FTSE Global Markets


The market continues its steady climb toward 18,000, while the VIX Index continues to drift lower, resting around the 13 level today, a range not seen since last October. Will strong earnings be the catalyst to drive the Dow higher and volatility even lower?  .


Earnings Next Week – 4/18 – 4/22

Earnings “season” kicks into full gear next week with reports from IBM, NFLX, GS, JNJ, INTC, YHOO, AXP, QCOM, VZ, MSFT, SBUX, and countless others. Below is a list of names that will report next week that have weekly options available for trading. After the ticker, the columns show the biggest gain, biggest drop, average move (non-directional), and stock price reaction last quarter.

Monday Before the Open
Ticker Max Min Abs Avg Last Q
HAS 12.55% -7.20% 5.03% 1.36%
MS 4.38% -5.40% 2.48% 1.12%
PEP 3.04% -2.21% 1.53% -0.74%
Monday After the Close
Ticker Max Min Abs Avg Last Q
IBM 1.77% -8.28% 4.23% -4.88%
NFLX 24.44% -19.37% 12.29% -0.14%
Tuesday Before the Open
Ticker Max Min Abs Avg Last Q
GS 3.04% -2.63% 1.57% -1.96%
JNJ 4.96% -2.64% 1.52% 4.96%
KSU 6.54% -15.17% 4.65% 4.45%
MTG 14.74% -12.88% 5.33% -12.88%
PM 8.74% -2.50% 2.07% -0.77%
UNH 6.52% -5.08% 3.27% 3.03%
Tuesday After the Close
Ticker Max Min Abs Avg Last Q
DFS 2.82% -7.98% 3.06% -7.98%
INTC 9.27% -9.10% 3.12% -9.10%
ISRG 17.71% -11.46% 6.33% 1.89%
VMW 16.72% -19.40% 7.73% -9.82%
YHOO 10.34% -8.71% 4.31% -4.75%
Wednesday Before the Open
Ticker Max Min Abs Avg Last Q
KO 5.69% -6.03% 2.60% 1.52%
EMC 5.61% -6.26% 2.68% -1.65%
USB 3.76% -2.20% 1.53% -2.20%
Wednesday After the Close
Ticker Max Min Abs Avg Last Q
AXP 5.12% -12.10% 3.74% -12.10%
CBI 14.21% -9.23% 4.54% 2.39%
FFIV 7.75% -9.96% 4.55% -0.57%
KMI 15.57% -5.32% 2.49% 15.57%
LVS 6.18% -3.12% 2.32% 2.89%
MAT 13.83% -12.02% 5.12% 13.83%
NEM 6.52% -7.72% 3.98% 0.93%
QCOM 3.31% -15.25% 6.06% -8.29%
NOW 15.34% -15.66% 9.52% -15.66%
SKX 19.28% -31.50% 9.96% 3.94%
URI 10.57% -18.37% 6.23% -18.37%
YUM 8.29% -18.83% 5.16% -0.19%
Thursday Before the Open
Ticker Max Min Abs Avg Last Q
BIIB 11.17% -22.08% 5.90% 5.15%
BX 6.42% -2.20% 1.80% -1.87%
BK 3.39% -4.70% 2.20% -3.27%
DHI 9.84% -11.53% 6.75% -4.73%
GM 5.79% -4.46% 2.83% -2.46%
NUE 5.71% -2.00% 2.00% 2.63%
BTU 14.15% -29.76% 8.97% -29.76%
PHM 7.01% -10.30% 4.52% 1.93%
LUV 8.42% -2.78% 2.66% 0.51%
UA 22.93% -7.38% 8.87% 22.59%
UNP 5.03% -5.69% 3.25% -3.55%
UAL 4.52% -9.83% 2.45% 0.47%
VZ 3.49% -2.42% 1.73% 3.26%
Thursday After the Close
Ticker Max Min Abs Avg Last Q
AMD 11.65% -16.19% 8.70% -7.69%
GOOGL 16.26% -3.65% 5.42% 1.32%
AMZN 14.13% -11.00% 9.15% -7.61%
ETFC 8.41% -3.06% 3.38% -0.99%
MRVL 5.42% -16.21% 4.60% -1.62%
MSFT 10.45% -11.40% 5.40% 5.83%
NSC 6.77% -3.05% 2.56% 1.44%
SLB 6.13% -2.17% 2.82% 6.10%
SBUX 7.61% -2.28% 2.41% 0.24%
TRN 10.14% -22.21% 7.86% -22.21%
V 10.24% -5.00% 4.32% 7.44%
Friday Before the Open
Ticker Max Min Abs Avg Last Q
AAL 5.90% -6.99% 2.52% 2.23%
CAT 5.94% -7.18% 3.71% 4.73%
GE 4.61% -4.06% 2.11% -1.22%
MCD 8.12% -2.68% 1.83% 0.68%
STX 8.58% -11.25% 4.00% 8.58%
SYF 6.61% -3.74% 2.03% 4.80%


Three Studies Show Strong Risk-adjusted Returns for Put-Writing Indexes

In 2011 I received an email from an experienced options manager that stated —

The introduction of BXM by the CBOE and the exchange’s continued support has created a new covered call asset class that fits well into the move to lower volatility equity products.  BXM gives us a much better accepted benchmark than is available in the Low Vol equity world.  We have been getting a lot interest, RFP’s etc. as consultants and institutional investors accept the notion of lower volatility equity products that match or exceed unhedged equity returns with less risk. One thing that would help in BXM replication strategies would by the acceptance of PUT as an identical, but operationally superior replication method.  The problem is that some people are having difficulty in not owning stock.  An education effort to show that Put/Call parity is not a theoretical concept but a real world truth would allow easy to implement BXM replication strategies using only puts and treasuries. …”

I replied to the manager that I spoke with some CBOE colleagues, and that there is general agreement that BXM Index and buy-write strategies generally were more well-known and accepted than put-write strategies in 2011, but that CBOE would provide more information and education on the put-write strategy and the PUT Index in the future.


In 2016 we are seeing evidence of more interest in put-writing strategies by individual and institutional investors, pension funds and ETF providers.

CBOE now offers four benchmark indexes that engage in the cash-secured put-write strategy –

  • CBOE S&P 500 PutWrite Index (PUT)
  • CBOE S&P 500 One-Week PutWrite Index (WPUT)
  • CBOE Russell 2000 PutWrite Index (PUTR)
  • CBOE Russell 2000 One-Week PutWrite Index (WPTR)

The website has links to the four indexes above (three of which were launched in the past year), and also to the three new academic studies below —


All three of the studies above (a) provided charts and/or tables that showed a number of metrics (including annualized returns, standard deviations maximum drawdowns and skew), and (2) showed that CBOE’s PutWrite indexes have had strong risk-adjusted returns (see below).

Exhibit 19 of the paper by Oleg Bondarenko showed that, since mid-1986, the PUT Index had stronger risk-adjusted returns (as measured by the Sharpe Ratio, Sortino Ratio, and Stutzer Index) than three stock indexes and a Treasury bond index. Note that, because of negative skewness, the Stutzer Index was lower than the Sharpe Ratio for both the PUT and S&P 500® indexes.


Exhibit 7 of the 2016 paper by Keith Black and Ed Szado showed that the PUT Index had higher risk-adjusted returns (as measured by (as measured by the Sharpe Ratio, Sortino Ratio, M2 and Stutzer Index) than nine other indexes. More