Last week the S&P 500 went on a tear to the upside and VIX lost 12.50%. The curve shifted and went back into contango. Before the S&P 500 started to put up new highs there were a couple of sizable VIX option trades that I found of interest.
Usually leading up to a Fed announcement things are pretty quiet around the CBOE floor. Also, on VIX expiration day (Wednesday was December expiration) the VIX pit is usually not the busiest market around. However, Wednesday morning before the Fed announcement there were a couple pretty interesting VIX option trades the came into the pit. These trades were done in several lots and different prices so the numbers are being rounded to the nearest 0.05. I do this to keep the math fairly simple also the size of the trades is a rough estimate give or take a few hundred contracts. Finally, going through the tape it appears both were executed in the first hour of trading.
At the time of these trades the spot VIX index was around 15.50 and the January VIX futures contract was trading around 15.10. Both trades basically have the same sort of ‘idea’ behind them, but we will look at them one at a time.
Trade 1 –
Experienced option traders can see that the VIX Jan 15 Straddle was sold for 2.50 and then part of those proceeds were used to buy the VIX Jan 22 Calls at 0.40. This resulted in a net credit of 2.10. The payoff for this trade (if held to expiration) shows up below.
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This Week in Nasdaq-100 and Russell 2000 Volatility – 12/20/2013
Usually leading up to a Fed announcement things are pretty quiet around the CBOE floor. Also, on VIX expiration day (Wednesday was December expiration) the VIX pit is usually not the busiest market around. However, Wednesday morning before the Fed announcement there were a couple pretty interesting VIX option trades the came into the pit. These trades were done in several lots and different prices so the numbers are being rounded to the nearest 0.05. I do this to keep the math fairly simple also the size of the trades is a rough estimate give or take a few hundred contracts. Finally, going through the tape it appears both were executed in the first hour of trading.
At the time of these trades the spot VIX index was around 15.50 and the January VIX futures contract was trading around 15.10. Both trades basically have the same sort of ‘idea’ behind them, but we will look at them one at a time.
Trade 1 –
Sell 27,000 VIX Jan 15 Puts @ 1.20
Sell 27,000 Jan 15 Calls @ 1.30
Buy 27,000 VIX Jan 22 Calls @ 0.40
Net Credit of 2.10
Sell 27,000 Jan 15 Calls @ 1.30
Buy 27,000 VIX Jan 22 Calls @ 0.40
Net Credit of 2.10
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This Week in Nasdaq-100 and Russell 2000 Volatility – 12/20/2013
Option trading on the CBOE Russell 2000 Volatility Index (RVX – 16.21) was introduced just a couple of weeks ago and open interest is working higher. Looking at the January series open interest is just over 2200 contracts with open positions in strikes ranging from the RVX Jan 17 Puts to the RVX 32.50 Calls. There are positions in February RVX options as well and open interest is just under 1000 contracts. It appears that RVX option trading is off to a solid start.
Last week both the Russell 2000 (RUT – 1146.47) and Nasdaq-100 (NDX – 3531.19) were higher based on a favorable view from the equity markets related to the result of the Fed meeting. RUT has been the star performer of broad based indexes in 2013 and kept up the pace with a 3.5% gain last week. The risk premium came in pretty dramatically for both markets with the CBOE Nasdaq-100 Volatility Index (VXN – 14.48) and RVX closing down 9.39% and 17.00% on the week.
This Week in Gold and Oil Volatility – 12/20/2013
Last week both the Russell 2000 (RUT – 1146.47) and Nasdaq-100 (NDX – 3531.19) were higher based on a favorable view from the equity markets related to the result of the Fed meeting. RUT has been the star performer of broad based indexes in 2013 and kept up the pace with a 3.5% gain last week. The risk premium came in pretty dramatically for both markets with the CBOE Nasdaq-100 Volatility Index (VXN – 14.48) and RVX closing down 9.39% and 17.00% on the week.
This Week in Gold and Oil Volatility – 12/20/2013
The gold market has kept traders on their toes in 2013. That is a generous understatement. This past week, specifically on Thursday, the SPDR Gold Shares ETF (GLD – 115.94) traded as low as 114.50 which is a new intraday low for 2013. What was interesting to watch was the reaction of the CBOE Gold Volatility Index (GVZ – 21.01) while GLD was testing the 2013 low. The index was higher, but not in a panic type fashion. This lack of concern showing up in GVZ turned out to be a good call as GLD held support. For the moment the volatility market believes GLD is going to stick above the 114 – 115 level.
I admit that I spend too much time focusing on the markets. You are a lucky person when your hobby is also your profession. The result of focusing too much on the financial markets is that you tend to personify different markets. In 2013 the CBOE Oil Volatility Index (OVX – 15.86) has been my red headed step child of volatility indexes. I have given OVX no love whatsoever in this space.
But with GLD dominating the headlines it was tough to fit in the time OVX probably needed and deserved. I decided to check in on OVX and on Friday the index close at an all-time low and it is 44% lower than where it began 2013. I’ve heard from oil traders that 2013 has been a tough year due to a lack of volatility. For their sake, I hope that OVX will return to the long term average (since 2007) in the mid-30’s.
I admit that I spend too much time focusing on the markets. You are a lucky person when your hobby is also your profession. The result of focusing too much on the financial markets is that you tend to personify different markets. In 2013 the CBOE Oil Volatility Index (OVX – 15.86) has been my red headed step child of volatility indexes. I have given OVX no love whatsoever in this space.
But with GLD dominating the headlines it was tough to fit in the time OVX probably needed and deserved. I decided to check in on OVX and on Friday the index close at an all-time low and it is 44% lower than where it began 2013. I’ve heard from oil traders that 2013 has been a tough year due to a lack of volatility. For their sake, I hope that OVX will return to the long term average (since 2007) in the mid-30’s.
