Today may be the longest day of the year, but I’m already looking forward to a post-Labor Day event, specifically the 6th Annual European version of CBOE’s Risk Management Conference which will be held September 11th through 13th. This year we will be visiting a new location just outside London, The Grove Hotel which appears to be an ideal setting for discussing all things derivatives and volatility.
Day one kicks off with a discussion titled New Developments in Options[...]
Facebook Bull Put Spread
With FB trading at 151.95 someone sold 200 FB Jun 30th 152.50 Puts for 2.44 and bought the FB Jun 30th 146.00 Puts for 0.60 and a net credit of 1.84. A quick summary appears in the video below.
At expiration the net result with FB above 152.50 would be a profit of 1.84, equal to the credit taken in on the trade. The worst case scenario is a loss of 4.66 and this trade has a break-even of 150.66.
Other trades of note:
With Bank of America (BAC)[...]
This is a big week for the FTSE Russell suite of indexes. On Friday, a large number of indexes will undergo what is referred to as the annual reconstitution. Specifically, the final phase of this process will occur on the market close Friday as stocks move into or out of indexes. The index we care most about at CBOE is the Russell 2000 which is the standard benchmark index for small cap managers in the US. Also, RUT options are the 3rd most actively traded broad based index[...]
VIX gave volatility bulls a little hope on Monday rising to the highest intra-day level since VIX was receding from the news flow that followed the firing of Comey by Donald Trump in the middle of May. However, as is the norm, VIX dropped and worked lower with the curve following in suit.
As Monday was the only day of real strength for VIX and the June VIX futures. One trader took advantage of that by selling an out of the money call spread. Late Monday as VIX was near 11.65 and[...]
As the week came to a close VXST which measures 9-day volatility expectations took a dive. Hence the big drop on the left side of the VXST – VIX – VXV – VXMT diagram below.
TYVIX finished the week below 4.00 which was a first for 2017, but not outside of the long term historical range. I checked the market expectations for the next FOMC meeting in late July and right now we have a 100% chance of nothing happening. That much certainty probably justifies[...]
Small cap stocks lost some of the recently gained ground relative to large cap stocks last week. The Russell 2000 (RUT) was down over 1% while the large cap focused Russell 1000 (RUI) was up slightly. The spread of RUI to RUT out performance for 2017 has now widened to almost 5%.
Despite the tough week for small cap stocks the CBOE Russell 2000 Volatility Index (RVX) finished Friday at a 2017 low. This lower relative level for RVX pushed the RVX to VIX ratio to the lowest[...]
VIX was higher by about 10% last week, but that did not have much of an impact on the rest of the term structure. The futures were mixed which can be attributed to just how steep the VIX curve was going into the week.
Before things turned to the upside on Friday we experienced the lowest level for VIX since 1993. The table below ranks the lowest inter-day lows for VIX since 1990. Note Friday ranks 6th and 4 of the 10 on the list occurred this year.
A couple of bullish[...]
That little bump in VXST that shows up on the far left side of the diagram below can be attributed to Friday afternoon activity. VXST rose 0.75 Friday while VIX was up 0.54. Shorter dated SPX option pricing is used to calculate VXST than VIX. It may be the weakness Friday afternoon in large cap tech stocks may have traders worrying about the direction of the stock market over the short term.
Several things pop out at me on the table below. VMAX had a nice week rising[...]
Small cap stocks prevailed last week as the Russell 2000 (RUT) gained over 1% while the Russell 1000 (RUI) was lower by about 1/3 of 1%. Large cap stocks still hold a lead over small caps in 2017, but the Russell 2000 has kept pace with the Russell 1000 since the end of the first quarter so all the large cap outperformance may be attributed to the first three months of 2017.
On the volatility front VIX and the CBOE Russell 2000 Volatility Index (RVX) rose last week, with the relative[...]
Small caps had a nice week with the Russell 2000 (RUT) rising 1.67% while the Russell 1000 (RUI) was up 1.01%. The large cap lead narrowed a bit, but the RUT still lags RUI by just over 5% year to date.
Continued low levels for VIX dominate the CBOE Russell 2000 (RVX) to VIX ratio which remains at historically high levels. VIX under 10.00 and RVX over 15.00 results in a ratio in the mid- 50% range to end the week.
Mid-day Wednesday, with RUT around 1360 a bullish trade[...]
The VXST – VIX – VXV – VXMT week over week curve change only has one noticeable move. VXST was up nicely last week, but we are going to attribute the whole move to the 3 day weekend effect and say the curve was basically unchanged.
The long volatility funds drifted down and short volatility ruled the week with SVXY rising 2% and relative newcomer VMIN gaining 2.2% last week. Worth noting below is VVIX which remains above 80.00 despite VIX closing for the second[...]
VIX dropped slightly as the S&P 500 powered to more all-time highs last week. The slight drop in VIX can be attributed to the already extremely low level that it closed last week. The futures all dropped a little as well, which may be more about moving along in time than lower volatility expectations.
VIX closed under 10.00 more times this year than any other year in history. The average for VIX is historically low as well in 2017. So, why is the short VIX trade[...]
VXST closed Friday at an all-time low of 7.60 which sounds impressive until you hear that for VXST the history we have to work with only goes back to 2011. I am going to make a bold prediction and say that VXST will move higher when the market reopens on Tuesday. Read that as sarcasm as VXST has never followed a three-day weekend without moving higher.
After having a short period of upward movement, the VIX related funds gave back performance and then some last week. The[...]
VIX finished the week at 9.81, just a tad above the post 2008 lows put in earlier this month. The June 2017 VIX cycle is five weeks long so there’s still plenty of time until June 21st expiration. The result is one of the steepest curves a can recall in the six years of posting these weekend blogs.
Friday, about an hour into the trading day, there was an interesting bull put spread executed in the VIX pit. With VIX at 9.80 and the June 7th VIX Future at 10.80 someone[...]
Large cap dominance continued last week as the Russell 1000 (RUI) gained 1.41% last week outdoing the Russell 2000 (RUT) performance of 1.09%. For the year RUI is just a little under 6% ahead of RUT.
With VIX finishing the week below 10.00 the CBOE Russell 2000 Volatility Index (RVX) level relative to VIX is at high levels. That is really more of a function of low volatility across the board, but continued underperformance of small caps is probably a contributing factor as well. [...]