The Weekly Options News Roundup – 1/8/2017

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.

New Year, New Outlook  

The beginning of a new year is an ideal time for investors to assess the state of their portfolios. Besides eating better, joining the health club and cleaning out the closet, here are some resolutions options investors may want to add to their list in 2017.

“7 New Year’s Resolutions for the Options Investor” – Steven M. Sears, Barron’s

VIX FIX: 2017, The Year of Dow 20K?

The Dow teased investors on Friday afternoon — coming oh so close, but failing to surpass, yet again — the historic 20,000 level. It did, however, close at a new all-time high of 19,966.40.  Amidst all the excitement, the CBOE Volatility Index (VIX) continued its New Year’s retreat, dipping to around 11.  Is next week the week that #Dow20K finally happens?  Investors may want to keep the party hats and confetti from last week’s New Year’s Eve celebrations handy…

“VIX and Stocks Rise Together” – Gunjan Banerji, The Wall Street Journal

“2016’s Zig and Zag of Volatilities” – Steven Sosnick, Barron’s

“A Philosophers Guide to Volatility: Maidel’s 2017 Outlook” – Scott Maidel, EQ Derivatives

“The Year in VIX and Volatility” – Bull Luby,

“2016: the Volatility Year that Wasn’t” – Dave Nadig,

Volatility Update: VIX Could Gain as 2017 Begins” – Georgio Stoev, Trading

“VIX May Be Indicating End to Trump Rally” – Wall Street Newscast

Weekend Review of Volatility Indexes and ETPs – 1/3 – 1/6

S&P 500 implied volatility was lower across all four time periods that are measured by CBOE Volatility Indexes last week.  VXST finished the week at 9.19 which is actually a tad higher than the low for 2016.  VIX also finished near the 2016 low of 11.27 but finished 0.05 above that level.  As a Trump presidency looms over the markets, with all the rhetoric and fear of what this means for the world, it’s a bit amazing market volatility is so low.


Earnings Next Week 1/9 – 1/13

One more week until earnings season kicks in.  In the mean time we have three major financials releasing numbers on Friday 13th.  As always the data below is based on the last three years of earnings results unless the ticker is in italics.  The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings.  Finally, double check the earnings dates as not all were confirmed.

Follow the Bouncing…Arrow

Yesterday, January 4th, in order to start out the new year with some degree of nail-biting (figuratively) drama, I hatched a little plan involving some short shares of UVXY.  The first thing I did was to buy to close 400 shares, reducing the 1,800 I had opened the previous day to 1,400 in quantity.  My plan was to re-short those 400 shares later in the day or on some upcoming day, along with 200 more which I envisioned as a day trade.

Then, thinking about the 1,400 short shares I still held, plus the 600 more I planned to acquire soon enough, I looked at premium for puts on the 6.50 strike of the same security.  As you can see from the graphic below, UVXY was trading in the $7 neighborhood when I sold 20 puts for the $6.50 strike and the January 13th expiration.

Of course, I was putting the cart partially before the horse, since I hadn’t yet made another short sale of shares, so only 14 of these contracts were considered “covered puts” and 6 were plain old stark naked.

See chart below for the timeline of my trading so far this year.

Here is expanded detail of the put trade.  This chart tracks the exact contract.  Last week, trading price was just a few pennies.  This week, prices exceeded twenty cents.  My price received was eighteen cents.

Several courses of action are available to me at this point, particularly regarding the short puts.  I could keep them and hope they expire worthless on January 13th.  This would require UVXY to close above $6.50 on that day.  I could trade my way out of the puts, by buying them to close and making a profit, breaking even, or taking a loss.  I could leave six of the contracts naked, or I could short more UVXY shares to make some or all of the contracts covered.  Of course, I could buy back any number of my existing short shares to make any number (including all ) of my contracts uncovered.

Will UVXY change in price today or in an upcoming day such that I’ll feel motivated to close my short puts?  Will it appear safe to leave those puts open through expiration?  Since I received eighteen cents in premium, UVXY could close as low as $6.32 (that’s $0.18 lower than the strike of the contract) on expiration day and I’d be able to realize no loss upon covering the short shares just before expiration.

Will UVXY rise enough that I’ll decide to re-short the shares I recently closed, and will I want to short even more shares?  Or will it rise so much that I’ll want to keep watching it for a higher entry point?  Will it continue to sink, yet I’ll decide to short more UVXY shares anyway?  Or will I close all of them?  These are all questions that will be answered in my next blog entry, as the near future unfolds.  If you’ve read this far, you must be following along, and if you’ve been doing that, I’m glad!

Higher Returns and Lower Volatility for BXMD and PUT Indexes Over 30½ Years

Investors now have access to price histories for several CBOE benchmark indexes that date back 30.5 years. The first two charts below show that since mid-1986 both the CBOE S&P 500 30-Delta BuyWrite Index (BXMDSM) and CBOE S&P 500 PutWrite Index (PUTSM) had higher returns than the S&P 500® Index, 30-Year Treasury Bond Index (Citi), MSCI EAFE® Index, and S&P GSCI Index.


The Annualized Returns and Standard Deviations bar graphs below show that, for example, the CBOE S&P 500 PutWrite Index (PUT) had higher returns and lower volatility than the stock and commodity indexes and the CBOE S&P 500 5% Put Protection Index (PPUT). Why did the PUT Index have higher returns and lower volatility than these indexes? One possible explanation for the relatively strong performance of the PUT Index is the fact that the index sells S&P 500 (SPX) options every month (while the PPUT Index buys SPX options), and SPX options usually have been richly priced in recent years, according to Exhibit 8 in a 2016 paper by Wilshire Associates at


A 18-page mid-2016 paper by Fund Evaluation Group at found (1) there is a volatility risk premium for options on the Russell 2000 (RUT) Index, and that the CBOE Russell 2000 PutWrite Index (PUTR) had relatively strong returns and risk-adjusted returns. The line chart below shows the returns for the PUTR Index that writes RUT put options once a month, the WPUT Index that writes SPX options every week, and the VSTG Index, which overlays short VIX calls and cuts with a capped long VIX call position.


The two charts below show histograms for 366 months of returns for the S&P 500, BXM, and the CBOE S&P 500 Iron Butterfly Index (BFLY), which is designed to track the performance of a hypothetical option trading strategy that 1) sells a rolling monthly at-the-money (ATM) S&P 500 Index (SPX) put and call option; 2) buys a rolling monthly 5% out-of-the-money (OTM) SPX put and call option to reduce risk; and 3) holds a money market account invested in one-month Treasury bills. Since mid-1986 the number of months during which the index had losses of worse than down 6% were –

*   26 months for the S&P 500 Index,
*   12 months for the BXM Index, and
*   Only 2 months for the BFLY Index.

Both the Standard Deviations and the Histogram charts above show that certain hypothetical options stratgies have had less volatility and downside risk than the S&P 500 Index.


For links to more information on CBOE benchmark indexes and releated whie papers and charts, please visit

Earnings Week of 1/3 – 1/6

A very small but mighty list with MON and WBA reporting Thursday before the open.  As always the data below is based on the last three years of earnings results unless the ticker is in italics.  The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings.  Finally, double check the earnings dates as not all were confirmed.


Getting Past The Four Fears of Trading – Part 1

As we embark on a new year, we can learn from the past to help us bolster our efforts into the future.  Change is always good, but there are some things very tough to alter – our emotions.  Try as we may to check our emotions at the door, as traders/investors there is often too much going on to just be emotionless.  When money is on the line we suffer from the emotional responses of fear and greed.  We are ALL wired this way and find ourselves somewhere on the spectrum – there is no escaping it.  But if we can control and manage our emotions we can then turn our attention to becoming better than we ever thought possible.

The four fears of trading were talked about by the late Mark Douglas in ‘Trading in the Zone’.  In this book, Douglas outlines the different stages we all suffer from in trading (and actually, in life).  The four fears:  Fear of Missing Out, Fear of Loss, Fear of Being Wrong and Fear of Letting a Win Turn into a Loss.  We will talk about two of these fears in this article and cover the next two the following week.  Conquering these fears is incredibly difficult if not impossible, but managing them is something we all must do to move forward.

The fear of missing out strikes us all with some pain.  The emotion of regret stings more than anything, especially when others around us are winning.  Nothing is more painful than sitting on the sidelines and missing out on the excitement.  We are supposed to be in the game — why are we not in the game?  Fear of losing is so overwhelming that we tend to paralyze ourselves.  When a trade is ‘right’ we just can’t seem to move our feet for fear of being ‘late to the party’.  We have all felt that way, and when markets are running higher we want to kick ourselves for missing out – especially when it seems too obvious.

The fear of loss is equally painful in trading and in life.  We mourn the loss of loved ones, crushed relationships and failing in sports all equally but with different degrees of pain.  In trading, we mourn the loss of our precious capital, and fear taking risks in the future.  We abhor pain, and a loss will only bring on more of it – no mistake, we fear losing money.  But losses are part of the game and once we accept that notion and understand it then we can rise above and deal with losses.  The key is moving on and not reflecting on the loss for too long.  There is always another trade around the corner – so take it!

In the next article we’ll discuss the fear of being wrong and the fear of letting a win turn into a loss.

18 Volatility Indexes in 2016: BPVIX Rose 277% before Brexit; VIX Futures Rose 55% on Election Night

CBOE offers more than 25 volatility indexes<> that can serve as valuable tools for investors who wish to gauge intra-day and long-term sentiment changes related to a variety of asset classes. In addition, investors take long and short positions in futures and options on key volatility indexes.

The tables and seven graphs below provide an overview of the 2016 performance of 18 of CBOE’s volatility indexes and the CBOE SKEW Index. Key points regarding volatility indexes in 2016 include the following:

*   There were some big moves in volatility indexes around the June 24 Brexit vote and the November 8 U.S. election.
*   New all-time daily trading volume records for futures on the CBOE Volatility Index® (VIX®) during Extended Trading Hours<> (non-U.S. hours from 3:30 p.m. to 8:30 a.m.) were set on June 24 (235,141 contracts) and again on November 9 (263,663 contracts).
*   The prices for VIX futures rose 55% over a 140-minute period on the night of November 8 (see Exhibit 2 below).
*   The daily closing values of the CBOE/CME FX British Pound Volatility Index (BPVIX) rose from 7.72 on Jan. 8th, to 29.10 on June 14th, a rise of 277% (see Exhibit 3 below). Implied volatility on the British pound was one of the financial markets’ biggest major movers in the months leading up to the Brexit vote (see Exhibit 3 below).
*   While the average daily closing value of the VIX Index in 2016 was 15.8 (below its long-term average of 19.7 since 1990), the average daily closing value of the CBOE SKEW Index was 127.6 (the second highest level among all its 27 years since 1990). These numbers could indicate that demand for hedging with deeper out-of-the-money S&P 500® (SPX) protective puts options could have been stronger in 2016.

Fifteen years ago many investors considered the tech stocks to be very volatile, and in 2001 the average daily closing values were 54.6 for the CBOE Nasdaq-100 Volatility Index (VXN) and 25.7 for the VIX Index. However, as shown in Exhibit 1, in 2016 the volatility indexes showed more volatility for small-cap stocks, as the average daily closing levels were 20.1 for the CBOE Russell 2000 Volatility Index (RVX), 18.2 for the VXN Index, and 15.8 for the VIX Index.



On the November 8 Tuesday election night in the United States, the reported prices for the November futures on the VIX Index rose from a low of 15.10 at 8:07 p.m. E.T., to a high of 23.46 at 10:27 p.m. E.T., a rise of 55% over a 140-minute period (source: Bloomberg). Reported volume for VIX futures during non-U.S. trading hours was an all-time record of 263,663 contracts during the November 9 trading session (which technically began at 3:30 p.m. C.T. the day before.<>).  On Wednesday morning, the price of the VIX Nov. futures fell below 16, as a story at noted that “Conciliatory comments from U.S. President-elect Donald Trump in the aftermath of his stunning victory over Hillary Clinton helped global stock markets erase a large chunk of their earlier losses Wednesday.”



While average daily close for the BPVIX Index was 12.0 in 2016, the BPVIX Index soared to 29.1 on June 14, prior to the Brexit vote.  Futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) are available, and some observers believe that interest rate volatility could soar in 2017.



In 2016 the CBOE Crude Oil ETF Volatility Index (OVX) hit a daily closing value peak of 78.97 on February 12, and it closed the year at 30.83.



In 2016 the CBOE China ETF Volatility Index (VXFXI) hit a daily closing value peak of 46.73 on February 11. The CBOE Emerging Markets ETF Volatility Index (VXEEM) jumped to 29.21 on November 14. It will be interesting to see how the policies of a new U.S. administration in 2017 impact global trade and the levels of global stock indexes. CBOE offers large-sized cash-settled options on the MSCI Emerging Markets Index (MXEF) and the MSCI EAFE Index (MXEA)<>.



In 2016 the average daily closing values were 30.9 for the VXAZN Index, 23.6 for the VXGOG Index, and 25.3 for the VXAPL Index. Exhibit 6 shows that the VXAZN Index had some big moves, and that the earnings announcement dates for Amazon in 2016 were on January 28, April 28, July 28, and October 27.



In 2016 the highest daily closing values were 153.66 for the CBOE SKEW Index on June 28, and 125.13 for the CBOE VIX of VIX Index (VVIX) on June 24. Both indexes hit relatively high levels around the June 24 Brexit vote and the November 8 U.S. election, as there was uncertainty as to how these events might impact equity markets.



The volatility indexes above are designed to primarily serve as gauges for market expectations of future volatility, and are not meant to show investable performance.
For those investors who would like to explore the possibility of investing in VIX futures and options, CBOE provides certain benchmark indexes that are designed to show the potential for investable performance for certain strategies that use VIX futures or VIX options. Four CBOE benchmarks that use VIX futures or VIX options rose in 2016 –

*   25.2%             VPD – CBOE VIX Premium Strategy Index
*   23.0%             VPN – CBOE Capped VIX Premium Strategy Index
*   1.1%               VSTG – CBOE VIX Strangle Index
*   1.0%               VXTH – CBOE VIX Tail Hedge Index
To learn more about these indexes, please visit<>, and read closely the related disclosures and disclaimers.


Please visit<> for links to information on more than 25 volatility indexes, strategies and a bibliography.

Looking Forward to 2017

Christmas certainly came early this year, but where would I look for more presents in the season of giving?

Consumers, not corporations run the economy. We collectively are responsible for 70% of our economy, so when we are more confident, when sentiment is positive, it is reflected in stock prices.

In 2017 I see several catalysts for higher consumer confidence: 1) Lower taxes 2) Redo or Replace Obamacare, both of which will put more change in consumer’s pockets. Where will they spend that?


I like COST (Costco) to continue to benefit from the happier consumer. Look at how many retailers peaked as they traditionally do, at or about Black Friday (BF) and then look at COST. It has held its gains, and is up 7% since BF, while TGT is down 6% and M is down 18%.


I also like HD (Home Depot) for several reasons: 1) Tax cuts will be spent here to make houses nicer to live in or sell 2) Many of the goods they buy are from overseas, so the strong dollar means they can buy at cheaper prices, 3) With 371,000 employees, a fix to ACA will save the company a fortune and hopefully its employees will have more in their pockets too, some of which gets spent at HD.


Middle to high end dining kingpin Dardens (DRI) parent company of Olive Garden, LongHorn Steakhouse, Red Lobster & The Capital Grille will benefit.

Popeye’s Louisiana Kitchen (PLKI) Change in tax rates benefit smaller companies even more than big ones, as they usually pay higher tax rates. 80% of their biz is in the US, so more confident consumers may move up the frequency of their trips to Popeyes.


More Dining out means more food production and more food production means fertilizer and animal nutrient companies like MOS (Mosaic) and AGU (Agrium) will benefit.


Obamacare has been a near death experience for health insurers. United Health (UNH) has already virtually abandoned the state insurance marketplaces, and shares have pushed to new highs since.

Jon Najarian @jonnajarian

Follow Dr. J on Twitter at
Talent hits a target no one else can hit; Genius hits a target no one else can see.



Big Option Activity and Bullish Social Media Sentiment Before Today’s KATE Rally

Shares of Kate Spade (KATE) made a mid-day headline grabbing move as news came out saying the company was considering putting itself up for sale.  A couple of things happened before the news that have people talking.  The first was in the option market where a few minutes before the stock rallied there were a few very well timed call option purchases.  The time and sales below highlights some of the bigger trades from today.


Data Source: LiveVol Pro

The buy of just under 2,000 KATE Jan 20th 16 Calls for 0.40 really got a lot of attention.  However, there was a big buyer of the Jan 20th 12 Calls and 17 Calls as well before the stock took off.


Improve Your Trading, Know Thyself

If you have been following me for some time then you know I’m all about learning, self-improvement and advancement in trading.  Eyes wide open, ears perked up.  Those who choose to move forward and become better are those who see the opportunity to learn at every turn, be it an obstacle or a wall.  We gain knowledge from each experience good or bad, we learn about ourselves and others.

How we react to situations and events is a sign of how far we have in our learning.  Trading is not easy, it is not a game of perfect – but with some self-awareness, humility and an open mind we can always become better. 

As we wind up the year it is time for two activities:  Reflect upon the year, see what worked and what didn’t work and analyze behavior under certain conditions.  In analyzing what worked and didn’t work is a fairly straight forward process.  I look at my trades which won and lost, how my profit/loss moved around and whether I was in the right trades at the right time.  I can make adjustments around the edges – take some more time with my option trades, a less riskier trade or something less complicated. 

My behavior and reaction in good/bad times is where it is more challenging, but I turn to my trading journal to learn about my own emotions and trades.  For instance, how was I feeling during the brexit and election times, when volatility was starting to soar?  Was I fearful and nervous, or bold and ready to step in?  It is in times of market stress when we find ourselves either at our best or worst, and having an understanding of our own self is the start of improvement.

By learning and understanding more about yourself is part of growing, becoming better at trading and handling challenging situations. 

History Lesson – VIX at Year’s End

I have been banned from CBOE until next year due to an abundance of days off.  However, I can still play with numbers and I decided to take a look at what VIX does on average between the last trading day before Christmas and the first trading day of the following year.  This first chart takes the average action from 1990 to 2015.  I found it pretty interesting that on average VIX actually rises (18.46 to 19.87), but upon further reflection the dampening impact of holidays getting out of the way may provide a boost to spot VIX.



Holiday Volumes as DJIA Tests 20K

Both equities and options volumes are down dramatically as we head into year end.

The S&P 500 volumes traded were down 26% Monday, 30% Tuesday and 38% Wednesday versus the prior 10 day average.

Options volumes have also been hit, but not as hard.

Total options traded and cleared Monday were down 16% from the prior 10 days. Volumes were down 18% Tuesday and 28% yesterday.

The CBOE’s VIX, the most widely followed measure of risk in the markets is down from a post election high of 23% briefly broke 11% yesterday. That’s a very dramatic drop, but with volumes traded and index trading ranges narrowing by the day, it seems unlikely we will see a dramatic change until post Christmas and into the final trading days of 2017 when people may seek a bit of protection for the beginning of 2017.

The DJIA has now posted 17 record closes since the election, but with more and more funds and active traders doing more shopping than trading it seems absent a push by HFTs we are not going to see 20K eclipsed today. The DJIA failure at 20,000 isn’t a big surprise as the impetus or catalyst simply isn’t there…yet.

Jon Najarian,


Talent hits a target no one else can hit; Genius hits a target no one else can see

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