Via Vix and more.
You really need a scorecard to keep up with the new product launches at the CBOE. Today was potentially a big one, with the launch of futures on the Nasdaq-100 Volatility Index, which most of us simply refer to as VXN or Vixen.
As the table below shows, the VIX continues to account for approximately 99% of the volatility index futures at the CBOE Futures Exchange (CFE). Today VXN futures (VN) traded 20 contracts on its opening day. While futures in the CBOE Emerging Markets ETF Volatility Index (VXEEM) are currently positioned at the #2 product at the CFE, VXN futures certainly have a lot of potential, with the likes of Apple (AAPL), Facebook (FB) and Google (GOOG) and other technology high fliers folded into this security.
On a related note, for anyone who may be interested, I authored the feature article, The Expanding Volatility Megaplex, in the current edition ofExpiring Monthly. This article chronicles the history of volatility indices and looks at how the CBOE has recently begun to aggressively expand the scope of volatility indices and turn these into product platforms for futures, options and exchanged-traded products.
We have traded derivatives for many years, read many volatility reports and attended multiple options presentations. This is the absolutely most unique visual and the “coolest” presentation of volatility we have seen over the past fifteen years. Great work by Chris Cole at Artemis Capital Management. For his last must read report click here, but before that, we urge you to watch the video presentation below.
“Nobody will deny there is roughness everywhere….” Benoit Mandelbrot
The movement of stock prices has been an obsession for generations of speculators and traders. On a higher level mathematicians believe that modern markets are an extension of the same fractal beauty found in nature. Visualized these stock markets may take the shape of a turbulent ocean with waves made of human hopes, dreams, greed, and fear.
Guest post by Vix and more.
It was only a week ago that I discussed the performance of 31 VIX and volatility-based exchange-traded products in VIX ETP Returns for Q1 2012and barely a month ago that I examined in some detail the workings of two VIX ETPs, VQT and XVZ, in Dynamic VIX ETPs as Long-Term Hedges. When stocks fall and volatility rises, however, which VIX ETP hedges work the best?
The answer is not so simple, unless you know when volatility will begin to spike, how far it will go and how long it will take to get there. Even then, it would still be helpful to know what happens to the VIX futures term structure along the way. Also, there are liquidity constraints that will probably limit the choices for most investors to a half dozen or fewer alternatives.
That being said, the current selloff can be used to highlight some important heuristics and alternative approaches. The first graphic below, for instance, illustrates the performance since the April 2 close of five representative and relatively liquid VIX ETPs (TVIZ was excluded on the grounds of liquidity; its performance during the period was similar to that of VXX) that can be used as hedges. For the most part, the performance trend is the opposite of what was observed during the first quarter.
Guest post by Vix and more.
Back in September 2010, in VIX and Historical Volatility Settling Back into Normal Range, I presented an earlier version of the chart below to explain that in spite of the protestations of the time, the relationship between the VIX and historical volatility (a.k.a. realized volatility) was actually right in line with historical norms.
The same claim cannot be made for 2012.
In fact, as low as the VIX appears to many, for the first three months of 2012 the VIX has been tracking at 177% of the 10-day historical volatility of the S&P 500 index. This ratio is well above the long-term average of 129% and also above the record for a single year – 162% in 1995 – which was back in the time when the premium of the VIX over realized volatility in the SPX (“volatility risk premium”) was routinely much higher than it has been in recent years.
Consider for a moment that from January 27 to March 7, 10-day historical volatility of the SPX never crossed above 10.00. Had the VIX volatility risk premium been at the typical historical level of 129%, the VIX would have been below 13.00 for this entire period. Of course, the VIX never traded below 13.00 during this six-week period. Instead, investors were unwilling to accept a VIX this low (i.e., drop prices in SPX options) in spite of low realized volatility, which is part of the reason (perhaps along with disaster imprinting and related issues) why the volatility risk premium was at a record high during the first quarter.
Guest post by Vix and more.
If you thought the TVIX (VelocityShares Daily 2x VIX Short-Term ETN) story was behind us, you might want to think again.
No, I am not talking about the recent news that FINRA is “looking at the events and trading” associated with TVIX and more generally that the regulator has “a review under way looking at a host of issues relating to ETNs and other complex products.”
Instead, my interest is in the return of some meaningful premium in TVIX relative to its Intraday Indicative Value (a real-time estimate of an ETP’s fair value, based on the most recent prices of its underlying securities) during the last three days.
For some historical perspective, consider that in the months prior to Credit Suisse (CS) suspending creation units on February 21, TVIX typically traded at a premium of about 0.5% above its indicative value. After the creation units were suspended, the premium vacillated wildly (as seen in the graphic below), though for several weeks the premium was locked in a relatively narrow range of 10-20%. That premium over indicative value spiked to 89% on the day before the announcement that Credit Suisse was resuming creation units. Once that resumption of creation units was announced, the premium in TVIX fell all the way back to 2% in just three days, no doubt signaling to many that it would soon be business as usual in TVIX trading.
During the last three days, however, the TVIX premium is has remained largely in the 10-15% range, ending today at 11.4%.
Guest post by VIX and more.
Lost in all the hoopla over the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) was a historic event in the options and marketsentiment world on Monday: a new single day high in the ISEE equities only call to put ratio.
To recap for those who may not be familiar with the ISEE, this ratio was developed by the International Securities Exchange (ISE) and is calculated by dividing opening long call options bought by ISE customers by opening long put options bought by ISE customers, then multiplied by 100. The ‘equities only’ slice of the full transaction pie means that all trades with indices and ETPs are excluded from this data, which also reduces the likelihood that any of the ISEE equities only data includes trades intended largely as portfolio hedges.
Monday’s record close of 410 means the ISE customers were buying four times as many calls as puts. Because there tends to be a lot of noise in the daily data, I like to average the data over a 10-day period. The chart below shows the ISEE equities only index since July 2011, along with the 10-day moving average.
Guest post by Bill Luby of Vix and more.
Since its launch in January 2009, VXX has been responsible for luring in unwary investors with its siren song promise of huge profits ahead of the next, inevitable, just-around-the-corner selloff in stocks. Unfortunately for VXX longs, the hoped for VIX spike usually turns out to be much more elusive than anticipated and investors who fail to tie themselves to their masts typically end up shipwrecked on the treacherous shore of complacency.
A glimpse at the biggest volume spikes in the history of VXX (see chart below) shows that almost all of these happen at near the top of a VIX spike and leave longs exposed to a sharp downturn. The notable exceptions are largely limited to last August, when a surge in VXX trading volume accompanied the first leg up of what turned out to be a multi-stage rally in the VIX and VXX.
The TVIX collapsed under heavy trading yesterday. After the close CSFB said it will create new shares, and the TVIX fell even further in after hours trading. From Vix and More.
One month and one day after Credit Suisse (CS) announced the suspension of new creation units in the VelocityShares Daily 2x VIX Short-Term ETN (TVIX), the issuer announced today that it plans to reopen issuance of TVIX “on a limited basis” effective tomorrow.
In a twist, the press release also noted:
“Beginning March 23, 2012, Credit Suisse may from time to time issue the ETNs into inventory of its affiliates to make the ETNs available for lending at or about rates that prevailed prior to the temporary suspension of issuances of the ETNs. Also, beginning as soon as March 28, 2012, Credit Suisse may issue additional ETNs from time to time to be sold solely to authorized market makers. Credit Suisse may condition its acceptance of a market maker’s offer to purchase the ETNs on its agreeing to sell to Credit Suisse specified hedging instruments consistent with Credit Suisse’s hedging strategy, including but not limited to swaps. Any such hedging instruments will be executed on the basis of the indicative value of the ETNs at that time, will not reflect any premium or discount in the trading price of the ETNs over their indicative value and will be on terms acceptable to Credit Suisse, including the counterparty meeting Credit Suisse’s creditworthiness requirements, margin requirements, minimum size and duration requirements and such other terms as Credit Suisse deems appropriate in its sole discretion.” [emphasis added]