Weekend Review VIX Futures and Options – 10/3 – 10/7

The only thing that rose last week on the VIX curve below was spot VIX.  The steep contango managed to influence the futures pricing versus spot and even with a small gain in VIX, all standard futures lost value last week.   Despite the divergence in performance between VIX and the futures, we are still in pretty steep contango as the market seems to be braced for some sort of fourth quarter surprise.



Will VIX Futures Prices Move During the Sunday Night Debate?

On the night of September 26 a debate-record 84 million people tuned in to watch the first of three U.S. Presidential debates. During the debate there were movements in the prices of futures on the CBOE Volatility Index® (VIX®), S&P 500® futures, and the Mexican peso (see below for a chart and more information).

If you would like to follow the movements of VIX futures during the upcoming Presidential debate from 8:00 to 9:30 p.m. CT this Sunday, October 9, here are three resources for you –


The trading hours for VIX futures begin at 5:00 p.m. Chicago time on Sundays, and VIX futures are offered more than 23.5 hours a day during the trading week Last month the average daily volume for VIX futures during extended trading hours (from 3:30 p.m. to 8:30 a.m.) was 31,901 contracts. www.cboe.com/ETH.



At around noon Chicago time on Friday, October 7, the VIX Index spot price was 13.88, and the VIX futures prices are shown in the table below.



During the first presidential debate on September 26 (from 8:00 to 9:30 p.m. CT) –

  • VIX futures prices fell,
  • S&P 500 futures prices rose.
  • Mexican peso rose in value (vs. U.S. dollar).

As shown in the chart below, during the 90 minutes of the first debate, the VIX October futures fell by about 0.50 points. (Please note that the new trading day for VIX futures usually starts at 3:30 p.m. the previous calendar day, and so on the calendar night of September 26, the September 27 trading day already had begun).


A 1290-word analysis by Professor Justin Wolfers of the University of Michigan noted that — 

“… During the debate, the overnight [stock index] futures markets rallied, raising the value of broad stock market gauges like the Standard & Poor’s 500-stock index by two-thirds to three-quarters of a percentage point. This was a consequential move, … the rally occurred between 9 and 11 p.m. on a Monday, typically a fairly tranquil time and, in this case, a stretch in which there was no other important economic or financial news. … the rise in stock prices was unusually large for that particular time period — larger than during the same window on all but one of the 200 previous Mondays. It appears to be a statistically significant move … “  

Regarding the Mexican peso, a September 27 news story at http://money.cnn.com noted that — 

“As Trump and Hillary Clinton sparred on live TV, one key financial barometer of the Republican nominee’s prospects started moving sharply: the Mexican peso soared more than 2% against the dollar. In recent weeks, the Mexican currency has been moving in the opposite direction to Trump’s poll numbers. As they have improved, the peso has dropped, hitting an all-time low against the dollar ahead of Monday night’s debate. Its sudden leap during the debate was a clear reaction to Trump’s performance, according to Ihab Salib, head of international fixed income at Federated Investors. …” 


To learn more about the ways in which VIX futures and options can be useful tools in portfolio management, please visit www.cboe.com/VIX.

Timely Twitter Trade From Yesterday

My youth was spent watching way too many Warner Brothers cartoons.  If you are like me then you know Sylvester the cat always struggled but never caught Tweety Bird.  A few firms were playing the role of Sylvester this past week and hoping to catch Twitter.  Apparently all the Sylvesters have gone away and no one is willing to catch Twitter, at least not in the mid-20’s.

When we have a big move in a stock that is somewhat unexpected I go to my Live Vol account and see if there were any option trades that got ahead of the move.  I didn’t have to look too hard as about 15 minutes before the market closed yesterday there was a buyer of 200 of the TWTR Oct 7th 24 Puts for 0.27.  As of mid-day today those same puts have a bid price of 4.15.  Not a bad return for a trade lasted less than 24 hours…

59 Years Ago the Russians Won the Space Race – Why Being First is Not Being Best

Fifty-nine years ago today everyone in the United States was a bit freaked out.  It had nothing to do with the stock market or economy.  It was due to something unseen that was floating over our heads.  The Russians had launched Sputnik, the first artificial satellite to orbit earth.  The Russians had beaten the United States to being the first in space.  The reaction in the US was a combination of fear (does this mean we are behind the Russians militarily as well?) to let’s get to work and catch up fast!  Both reactions were natural, but either reaction is not necessarily how traders should react to other’s beating them to a new strategy having success with a new market.   In trading being first is not always being best.  It was true in the space race as well.

We all have the experience of hearing other trader’s success stories.  A human reaction to the trader at the option club who has discovered a great way to make profits in Russell 2000 Index options, which worked great for the past four weeks since you saw him last is to start doing the same thing when the market opens tomorrow.  However, this is often a recipe for failure.  Keep in mind that when the Russians put Sputnik into orbit they had failed in many ways that were not made public.  Heck, they put people’s lives in danger in ways the US would never consider, just to beat their rival into space.  Your trader friend most likely has suffered through months if not years of trial and error leading up to their short term success.  Remember that he’s only sharing the success.

The geniuses at NASA went to work catching up with the Russians in the space race, eventually through hard and independent work became the only country on earth to put a man on the moon.  We had our own setbacks as well and they were public, but through focused hard work, we prevailed in the space race.  You can do the same in the trading arena, but there are no short cuts.  Focus on your own methods, don’t worry about the other guy, and take your time working into becoming a consistently profitable trader.  It worked for NASA and it can work for you as well.

CBOE and RCM Alternatives Event on VIX Futures Trading

The CBOE Options Institute is teaming up with RCM Alternatives on October 13th from 4:30 to 8:00 for a discussion and expert panel on VIX Futures and Options trading.  The even will be held at CBOE with a reception following in the Member’s Lounge that overlooks the trading floor.

The event will cover the current landscape and forecast for the VIX, misconceptions and facts about the structure of VIX futures, and the evolution of how this “fear gauge” has evolved as a trading instrument.

After an informative talk we jump into the actual application of VIX Futures and incorporating them into portfolios with an in depth panel discussion amongst 4 professional fund managers (see below) utilizing VIX futures in their management of millions of dollars.

For more information and to register to attend for free click on the link below –

The New Asset Class:  Investing in (or against) Volatility with VIX Futures

Keeping a technical eye on LULU

I have a setup I’m stalking in LULU via a weekly chart.  Now I say that I’m stalking this one because I do NOT see any official buy triggers yet that tells me it’s worth placing a bet on this stock.  I am however anticipating a possible buy trigger if LULU tests one of the two key support zones I’m looking at on this weekly chart.  The first zone comes in at the 57.91-59.02 area.  The second zone comes in at 52.92-54.95.  These price cluster decisions include some 100% projections of prior similar declines on this weekly chart along with some key retracements and even a Fibonacci price extension of a prior swing low to high.  Then you may ask what a trigger is??

What I typically like to look at for a “trigger” to a setup like this,  would be on a 30-minute chart of this stock.  This is where I see a pattern shift to higher highs and lows, by taking out a prior swing high, along with the 8/34 EMA crossover to the upside.  So far, we are not seeing either of these things happening, but like I said.  I’m stalking this one for a decision within the next week or so.  I would keep this one on your watch list!  


News Story by Pensions & Investments Highlights Put-write Strategy, PUT Index and New Wilshire Paper

An October 3 news story – “Funds go exotic with put-write options to stem volatility” – in Pensions & Investments noted that put-write options strategies “are finding their way into more pension fund allocations to protect against volatility and, in some cases, take the place of fixed income as an income provider.” 

The news story noted that a new paper by Wilshire — Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016) found that the CBOE S&P 500 PutWrite Index (PUT) “with an annualized 10.1% return, outperformed the CBOE S&P 500 buy-write index’s 8.9% and the S&P 500 stock index’s 9.9% over 30 years …”    


Below are two of the many 30-year charts in the new paper by Wilshire. In the two charts the PUT Index ranked in the top two indexes in terms of both returns and volatility. Exhibit 8 of the Wilshire paper notes that the fact that SPX implied volatility usually exceeded realized volatility could be helpful to index options sellers.


Note in the chart below that the PUT Index had lower volatility than the stock indexes and all the other options indexes (even the CBOE S&P 500 5% Put Protection Index (PPUT)).



The new October 3 story in Pensions & Investments is at http://bit.ly/PutWrite-P-I.

More information on the PUT Index is at www.cboe.com/PUT.

Links to papers by Wilshire and other firms that analyzed put-write strategies are at www.cboe.com/benchmarks.

How Would a Cubs World Series Victory Impact VIX?

The baseball regular season came to an end yesterday and the Chicago Cubs are positioned to make a historic run that most expect will end in a World Series victory.  See what happens when a trader takes control of a team….

Since many people thought this would never happen, it may also be thought of as a black swan event and we all know that black swans have a dramatic impact on market volatility and show up in an elevated level for the Chicago Board Options Exchange Volatility Index, commonly known as VIX.  So I ask the question that I care the most about, “How does a Cubs World Series victory impact VIX?”

First, and most obvious, is there will most likely be a lack of liquidity the day after the Cubs end over a century of futility.  I was on the trading floor when the Bulls won their first championship and many traders, brokers, and clerks (mostly clerks) were mysteriously sick the day after this Bulls win.  Most of the traders and brokers were up past their bedtimes, while the clerks were wreaking havoc outside whatever bar they were watching the game.  In that case, I know of a few that caused enough damage that their sick day was more about finding someone to bail them out.

Second, when there is one outlier event, traders start speculating on another outlier event.  Keep in mind that the World Series will end just before the next presidential election.  You may hear things like, “If the Cubs can win, why can’t Donald Trump win?”  This was a topic that came up a few times at our Risk Management Conference last week.  The feeling was a Trump victory may create more uncertainty in the equity markets than a Clinton victory.   If traders agree with this line of thinking then it will have an impact on VIX, most likely solidifying a move to a higher volatility regime.

(As a note, in this day and age it is impossible to mention a candidate’s name without alienating a large group of people, I’m just repeating things I heard at the conference and making no endorsement).

Finally, we need to consider what happens to the markets if hell freezes over.  This is a tough one to speculate on, but if this happens, I’m guessing it would need to stop accepting new arrivals to clean up.  This might result in fewer deaths and longer life spans.  Also, if the king of darkness is busy worrying about pumping water out of his basement, he may stop whispering in trader’s ears about a potential market sell off.  Whatever negative things that happen on earth due to his influence will probably cease to occur.  This temporary calm, depending how long it lasts, may even result in a drop for VIX below 10.  Something that hasn’t happened in over a decade, but more recently than a Cubs World Series win.

Needless to say, a Cubs World Series victory will have an impact on Chicago and the rest of the world.  It will be an unexpected outlier of an event, but will also put an end to futility that is sometimes beyond explanation.  As far as the impact on VIX, it is anyone’s guess, I can make an argument either way.

BigTrends.com Weekly Market Outlook – Mildly Bullish Undertow

Stocks managed to log a gain last week, but it was a “just barely” situation. The S&P 500 (SPX) (SPY) ended only 0.1% higher than it ended the prior week, and still closed below all of its key technical resistance levels. The bulls are going to have to do better than this to achieve escape velocity. Still, the undertow remains technically bullish, and a break above the ceilings here is within easy reach.

We’ll look at the hurdles and weigh the odds after a quick run-down of last week’s and this week’s economic news.

Economic Data

Last week was relatively busy in terms of economic news, beginning with Monday’s report on new-home sales (which rounded out the previous week’s existing-home sales report). The pace of 609,000 units was better than expected, but still not as strong as July’s pace of 659,000.

New & Existing Home Sales, Inventory Chart


Source: Thomson Reuters

Where existing-home sales have lacked, new-home sales have generally offset weakness… and vice versa. Again, a lack of available inventory may be holding purchase activity back.

It was also a huge week for consumer-sentiment data, with the Conference Board’s consumer confidence score coming out on Tuesday followed by the third (and final) September reading of the Michigan Sentiment Index being posted on Friday. The former reached a multi-year high of 104.1, while the latter moved higher, to 91.2.

Consumer Sentiment Chart


Source: Thomson Reuters

Strong sentiment is interesting here, in that economic malaise and tepid job growth — not to mention a stagnant stock market — would seemingly leave people discouraged. Clearly they see something encouraging though.

The only other data worth exploring from last week was the third and final reading on Q2’s GDP growth rate. It was revised upward to 1.4%, which ended up being better than Q1’s 1.1% growth rate, but still tepid.

GDP Growth Chart


Source: Thomson Reuters

Everything else is on the following grid:

Economic Calendar


Source: Briefing.com


M&A Is a Sign of Economic Health

Last year was a record year for M&A, but going unnoticed in 2016 is the plethora of mergers that have taken place across many sectors.  Whether it is airlines, media, semiconductors or chemicals – this year has been one of the biggest on record in size and scope.  Yet, one wonders why so many mergers are happening with the stock market at/near all time highs just about the entire year?  The worst of course occurred during the first six weeks of the year and it has been up ever since. 

We have seen companies bought out at record premium, and often for straight cash.  In the ‘old days’, we would often raise an eyebrow when a company used their stock as acquisition currency.  This is not at all happening today.   Further, international companies have an eye for US companies too, this trend far from over.  So, if the market is supposedly ‘expensive’ on several metrics, why so much buying and possibly overpaying for acquisitions?

We can simply look at the US economy and see there is some daylight ahead.  Further, we can see the market is often excited about companies teaming up, with both companies rising (a rarity) on news of a deal.  Oh, we can talk endlessly about how 2% growth is the ‘new normal’, but the fact is firms are lean, hold tons of cash (which is a great attraction) and are often targets for diversification.  Earlier this year we saw some of the biggest acquisitions made for this very reason with Dreamworks, Alaska Air, Medivation, LinkedIn and St Jude.

Just last week we heard Qualcomm come out and say they were interested in paying a big premium for NXP Semiconductor, and both stocks soared on the potential news. 

We have seen our fair share of busted mergers, including Allergan/Pfizer and Halliburton/Baker Hughes along with possibly Monsanto/Bayer (regulatory issues).  Yet, given the insatiable appetite for companies to grow and find value we could certainly see this trend continue into the end of the year as we perhaps break new records, and quite possibly kick-start 2017 with a bang.

The Weekly Options News Roundup – 10/2/2016

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.

CBOE RMC Europe’s High 5
rmcCBOE held its 5th annual Risk Management Conference (RMC) Europe in County Wicklow, Ireland earlier this week.  “The Volatility Summit,” as RMC is sometimes affectionately called, was attended by nearly  200 financial professionals.  Sessions covered new CBOE products, discussions of new studies on options-based strategy performance indexes, strategies for managing risk,  enhancing yield and lowering portfolio volatility, and of course, VIX.  For highlights from CBOE RMC Europe, including blogs on sessions and video interviews, visit, www.cboermceurope.com.

“CBOE RMC Europe: Equity Allocations, Options Key For Challenged” – Robert McGlinchey and Georgia Reynolds, EQ Derivatives

“CBOE RMC Europe: Hybrids Turn Off Some Institutional Investors” – Georgia Reynolds, EQ Derivatives

“New Study Finds Russell 2000 Index Options Benchmarks and Options-Based Funds less Volatile” 
“Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying; A Performance Analysis”

For more information, go to http://www.cboe.com/benchmarks

CurveGlobal Launches
curveAfter much anticipation, CurveGlobal, a new  venue for trading European interest rate futures, backed by the LSEG, dealer banks and CBOE, successfully launched on Monday.  CBOE’s Senior Vice President, Business Development, Andy Lowenthal, represented CBOE at the bell ringing ceremony at the London Stock Exchange (LSEG).

“LSE Curve Sees 500+ Lots Traded on First Day” – Luke Jeffs, FOW

“LSE Sees Curve Trades After Monday’s Launch” – Luke Jeffs, FOW

“LSE and Banks Set to Launch New Derivatives Exchange” – Philip Stafford, Financial Times

VIX FIX: Volatility’s Fright Night
After a series of triple-digit moves this week, the Dow Jones Industrial Average closed  in positive territory for the week.  The CBOE Volatility Index (VIX Index) spiked above 15 briefly, before receding back to levels around 12.50 Friday afternoon.  Historically, the VIX Index rises during  October during election cycles.  So as the election heats up, in a month known for fright, investors could be in for quite a scare.

“Volatility Hedge Funds Sees Bull Market in Fear as Bets Jump” – Aleksandra Gjorgievska, Bloomberg

“A Misunderstood VIX Trade That Comes With Built-In Safety Cushion” – Simon Maierhofer, Market Watch

“A Power Tool for Traders” – Chris Dieterich, Barron’s

“VIX in October In Election Years” – Peter Tchir, Forbes

“U.S. Options Volume Could Hinge on Greater Election Clarity” – Daniel O’Leary, EQ Derivatives