Education Archives - CBOE Blogs

  • Market News | Trader Talk | Education | Trade Ideas | Oct 4, 2015, 7:30 AM

    The Week in Russell 2000 Trading - 9/28 - 10/2

    The Week in Russell 2000 Trading - 9/28 - 10/2

    For the second week in a row large cap stocks outperformed small cap stocks by about 1.5%.  The big difference this week was that the Russell 1000 (RUI) was higher while the Russell 2000 (RUT) lost value.  The previous week RUI lost less than RUT, but both had pretty lousy weeks.  For the year RUI is now down a little more than 5% while RUT has lost just over 7.5%. The CBOE Russell 2000 Volatility (RVX) index finished the week at a little over a 10% premium to VIX.  This lack[...]

  • Education | Oct 1, 2015, 10:00 AM

    Bear Market Rallies Are Vicious

    Bear Market Rallies Are Vicious

    The past week, it seemed markets were ready for a nice rip to the upside, on at least a couple of occasions.  That is something actually, as since late August the bulls have been struggling to string some momentum together.  While Monday was a solid win, the sellers came out in earnest the next day with a gap down and close lower that did not give the bulls a chance.  Friday seemed to be all about the upside, given the big rally off the monthly lows the prior day. A 25 handle gap up[...]

  • VIX | Trader Talk | Education | Futures | Trade Ideas | Sep 27, 2015, 2:20 PM

    New White Paper Discusses Volatility as a Small Cap Portfolio Hedge

    New White Paper Discusses Volatility as a Small Cap Portfolio Hedge

    A new white paper from our partners over at Russell Indexes Research discusses the merits of using futures on the CBOE Russell 2000 Volatility Index (RVX) to hedge small cap risk.  In the paper “RVX futures as a hedge for small cap-specific risk” Barry Feldman covers volatility products that are currently available to hedge downside risk in equity portfolios and then goes on to compare using VIX futures and RVX futures to hedge a small cap focused portfolio. Feldman uses the market[...]

  • Market News | VIX | Trader Talk | Education | Futures | Sep 26, 2015, 10:44 AM

    The Week in Volatility Indexes and ETPs - 9/21 - 9/25

    The Week in Volatility Indexes and ETPs - 9/21 - 9/25

    With the drop in the S&P 500 last week the market continues to be on edge.  This is reflected in the uniform move higher in the VXST – VIX – VXV – VXMT curve from last week.  Note the ‘bump’ remains on the VXV data point which represents 3 month implied volatility.  This time frame is the first on the chart below to come after the last two Fed meetings in 2015.  It will be interesting to see if a change in the shape curve coincides with the approach[...]

  • Market News | Education | Trade Ideas | Sep 24, 2015, 8:26 PM

    RMC Europe Day 3 Preview

    RMC Europe Day 3 Preview

    The final day of the Fourth Annual European Version of CBOE’s Risk Management Conference gets started with a keynote address from Edward Chancellor a noted financial author and historian.  Chancellor’s address is titled, “The Consequences of Extraordinary Monetary Policy – An Historical Perspective on the Current Environment”. After the keynote address the balance of the morning is filled with a wide variety of presentations.  Hitendra Varsani from Morgan Stanely[...]

  • Market News | VIX | Trader Talk | Education | Sep 24, 2015, 1:51 AM

    RMC Europe Day 2 Preview

    RMC Europe Day 2 Preview

    The second day is always the most jam packed day at Risk Management and this year’s European stop in Geneva is full of thought provoking presentations. The day begins with a welcome address from Ed Provost, President and COO of CBOE Holdings.  The welcome address normally touches on new product initiatives and I look forward to finding out what CBOE has in store.  Paul Donovan, the Global Economist from UBS follows the welcoming address delivering a presentation titled, “It[...]

  • Education | Sep 23, 2015, 2:04 PM

    Covered Calls - In Or Out Of The Money?

    Covered Calls - In Or Out Of The Money?

    What strike proximity works best for covered call writing? The answer depends on several mitigating factors: What is your basis in the underlying? If your basis is far below the strike of the call, you have to determine whether you want (A) current income while keeping the stock, or (B) a sale of the stock. If you want current income, but do not want your underlying to be called, an out-of-the-money call makes sense. If the stock price remains below the strike, you will not be exercised and once[...]

  • Market News | VIX | Trader Talk | Education | Sep 19, 2015, 5:42 AM

    The Week in Volatility Indexes and ETPs - 9/14 - 9/18

    The Week in Volatility Indexes and ETPs - 9/14 - 9/18

    All four of the S&P 500 oriented volatility indexes dropped last week as we finally got the September FOMC meeting behind us.  At this point there are two more meetings in 2015.  What I find interesting is VXV, which is a measure of 3 month expected volatility held up more than the other three indexes.  It just so happens that 3 months from this week is also the final FOMC meeting of the year. In the ETN space, VXX, UVXY, and TVIX gave up more of the recent gains despite the VIX[...]

  • Market News | Education | Sep 18, 2015, 12:43 PM

    TYVIX Weekly Review: Treasury Volatility Yawns Following Much-Hyped Fed Meeting

    TYVIX Weekly Review: Treasury Volatility Yawns Following Much-Hyped Fed Meeting

    The financial world is familiar with volatility smiles and volatility smirks. This week we were treated to a volatility yawn. Treasury and equity volatility declined all the way into the Federal Open Market Committee’s Wednesday-Thursday meeting as investors concluded that the FOMC would probably not raise the federal funds target rate – the FOMC had repeatedly voiced its concern about too little global growth and too little inflation.  But all was not ho-hum on Thursday. A moment[...]

  • VIX | Trader Talk | Education | Trade Ideas | Sep 13, 2015, 2:06 PM

    The Week in Russell 2000 Trading - 9/8 - 9/11

    The Week in Russell 2000 Trading - 9/8 - 9/11

    Small and large cap stocks moved higher in sync last week with both the Russell 1000 (RUI) and Russell 2000 (RUT) gaining about 2%.  Both are still lower for the year with RUI down 4.32% and RUT down 3.89%. On the volatility front VIX finished the week at about a 5% discount to the CBOE Russell 2000 Volatility Index (RVX).  Historically RVX is usually at about a 20% premium to VIX, however, in times of global crisis or higher levels of volatility the two tend to converge.  The recent[...]

  • Education | Sep 10, 2015, 3:40 PM

    Option Trading Terminology - FOOTBALL Edition!

    Option Trading Terminology - FOOTBALL Edition!

    A market maker who stood next to me in the pit for 10 years here at CBOE used to always say option trading is the closest thing to professional sports.  With the NFL football season beginning tonight I thought it would be a good time to review option terminology to see if his assessment is really true. Hang Time – Waiting for the market to open. Artificial Turf - Synthetic Ineligible Receiver – Not approved for complex strategies. Down – How you feel after a losing[...]

  • Education | Sep 9, 2015, 12:05 PM

    When Stocks Can Only Rally to Resistance - Bear Market is Here, The Bull is Over

    When Stocks Can Only Rally to Resistance - Bear Market is Here, The Bull is Over

    With the recent volatility in the markets and the very extreme price action there is a level of confidence that has become shattered. That is evident in the charts of many stocks across the landscape, and indicative of the indices on numerous timeframes. But we also see this confidence flagging in sentiment too, and for the six year bull market dips have been buying opportunities, but not this time around. For the longest time we could always defer to the longer term charts to justify staying long,[...]

  • Market News | VIX | Trader Talk | Education | Futures | Trade Ideas | Sep 5, 2015, 11:00 AM

    The Week in Volatility Indexes and ETPs - 8/31 - 9/4

    The Week in Volatility Indexes and ETPs - 8/31 - 9/4

    The S&P 500 lost 3.4% last week which I guess is becoming commonplace these days.  Do note on the curve below that VXST closed a tad lower on a week over week basis.  We attribute this to the long weekend we are currently experiencing and I’ll address that a little more in a minute. Both VXST and VIX experience a little bit of a headwind going into long weekends.  This can be attributed to the calculations of both being based on calendar days and not trading days. [...]

  • Market News | Education | Sep 4, 2015, 12:17 PM

    TYVIX Weekly Review: VIX Futures in Backwardation

    TYVIX Weekly Review: VIX Futures in Backwardation

    A New Volatility Regime of Generally Higher Values than a Year Ago With the Chinese stock market on holiday (the Shanghai and Hong Kong markets were closed Thursday and Friday in remembrance of the 70th anniversary of World War II), volatility has stabilized.  However, amid persisting uncertainty about the world economy, it is a new regime. Values are significantly higher than a year ago, especially for equities. Figure 1. Weekly Update on Volatility Levels VIX Futures in Backwardation Stock[...]

  • Education | Sep 3, 2015, 5:30 PM

    CVX Time Value Spread Strategy

    CVX Time Value Spread Strategy

    The price of crude oil has not seen such a precipitous drop in price since 2008 when the overall economy cratered. On July 11th, 2008 crude closed at $144.96. On December 19th, 2008 crude closed at $33.17. Today the economy is not imploding. The drop in price is attributed more to an excess of supply instead of a weakened demand. The spot price of crude is currently trading below $42, less than half of its $96 price twelve months ago. Some analysts are calling for a price below $30 a barrel. It’s[...]