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Posted: 23 Feb 2014 04:30 PM PST
VIX was up despite a fairly flat week over week performance for the S&P 500. Part of this goes with the three day weekend effect, but there is also a nervousness that seems to be creeping into the market. Depending on your market outlook this could either be considered bullish or bearish – bullish if you believe the market climbs a ‘wall of worry’ or bearish if you think that higher volatility can be a precursor to a bearish equity market.
One trade on Friday in VIX options caught my eye. There was a buyer of VIX Mar 17 Calls at 0.74 who sold twice as many of the VIX Mar 22 Calls at 0.30 each creating a ratio spread at a net cost of 0.14. A moderate spike in volatility (ideally the March future at 22.00) would be a positive in this case, while a volatility ‘event’ that pushes VIX to the upper 20’s could be a problem. The payoff diagram below shows just how this would work –
As far as the curve goes, VIX climbed 8% and the March future rose 0.45. Beyond that the rest of the VIX futures curve was pretty inactive last week.
Posted: 23 Feb 2014 02:30 PM PST
I have been giving entirely too much love to gold in this space so this week I’m going to start off discussing oil. Oil futures moved over 102.00 this past week in what has been a pretty orderly march higher. I’m not sure if global economic recovery, global political uncertainty, or everyone in Chicago trying to keep warm is the primary factor. Despite a 2% rise in the United States Oil ETF (USO – 36.69) the CBOE Crude Oil ETF Volatility Index (OVX – 17.90) hardly moved last week.
Gold continues a bullish move to the upside, but this move was a bit muted last week with the SPDR Gold Shares ETF (GLD – 127.58) rising about 1/3rd of 1%. GVZ is pretty close to the 2014 closing low which signals complacency on both sides of the bullish / bearish fence.
Posted: 23 Feb 2014 12:30 PM PST
Ever since CBOE launched trading on the CBOE Russell 2000 Volatility Index (RVX – 19.20) I have been focused on the relationship between the S&P 500, Nasdaq-100, and Russell 2000. The Russell 2000 was a champ in 2013 beating the S&P by almost 10%, but had been lagging the S&P 500 in 2014. The key part of that statement is the word ‘had’ as the Russell 2000 was up over 1% while both the S&P 500 and Nasdaq-100 lost ground last week. Despite the good week RVX is still slightly above the average spread relative to VIX over the last year or so. I always believe there is a story behind the numbers and in this case I’m guessing risk perception for the US versus the rest of the world continues in a heightened state for 2014, despite the good week for the Russell 2000.
Posted: 23 Feb 2014 10:30 AM PST
The iShares MSCI Brazil Capped ETF (EWZ – 40.76) gained 1.3% on Friday which moved the weekly performance from down 1% to up 0.3%. The Brazilian equity market has been under pressure due to some concerns that are specific to Brazil and some concerns that could be referred to as guilt by association (think Argentina – even though the two countries are in two very different situations). Whatever the reason, despite an up week for EWZ implied volatility climbed as well and the VXEWZ curve is showing signs of backwardation.
The more developed of the emerging markets were under pressure relative to EWZ and the iShares MSCI Emerging Markets ETF (EEM – 39.43) posted a loss for the week, but go figure, VXEEM was actually lower and that curve is in contango. Despite the underlying performance being of a contrary opinion this past week the volatility players see more risk in Brazil than the overall emerging market sector. I’ll be interested to see the relative EEM / EWZ performance for the next few weeks to see who is right.
 
Posted: 23 Feb 2014 08:30 AM PST
Futures trading on the CBOE Short-Term Volatility Index (VXST – 13.04) is a little over a week old and the volume is still gaining traction. As noted in an earlier blog, VXST gapped higher on Tuesday morning due to the impact of a three day weekend on the index calculation. The difference between the index and futures price changes this past week shows that a good portion of the 20% gain in VXST last week may be attributed to the index adjusting before and after a long weekend.
VXST futures expire every week starting with this coming Wednesday. They are AM settled which means that they cease trading Tuesday afternoon and will settle based on the relevant opening S&P 500 Index option prices. I have penciled in on my calendar to post more on the process Wednesday evening.
Posted: 23 Feb 2014 06:35 AM PST
The S&P 500 posted a slight loss this past four day week and VIX reacted by climbing over 8%. Some, but not all, of this gain for VIX can be attributed to the calendar impact of a three day weekend. For those that are not aware of this anomaly, the spot VIX index is calculated to determine a 30 day implied volatility measure with the 30 days being calendar days. When there is a long weekend it can put extra downside pressure on VIX which then goes away when the market reopens after the long weekend. VIX closed last Friday at 13.57 and opened Tuesday at 13.95 despite the S&P 500 opening slightly higher as well. Wednesday was a particularly tumultuous day that pushed VIX to 15.50. However as the week drug along VIX drifted lower as the S&P 500 traded in somewhat of a trendless manner.
The calendar impact is much more dramatic with respect to the CBOE Short-Term Volatility Index (VXST) which gapped open by almost two points on Tuesday morning. CBOE has historical data compiled going back to the first day of 2011 for VXST and over that time period there have been seventeen Monday holidays. VXST has been higher all 17 of the Tuesdays that have come after a three day weekend. The week over week change for the VXST – VIX – VXV – VXMT curve appears below.
In the ETN space the funds did as expected with the long oriented funds climbing and the short funds dropping a bit. The big news a week or two ago in this space was that XIV had overtaken VXX as the largest of the VIX related exchange traded products. A quick check of their respective websites shows the market cap for XIV at $822 million as of Friday’s close and a market cap of $930 million for VXX as of Thursday’s closing price. Since VXX was higher on Friday and XIV was lower I’m going to make the assumption that VXX has regained the top spot among the VIX ETNs.
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MFA supports DFSA efforts to modernise the Dubai International Financial
Centre fund framework
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Reforms will strengthen DIFC’s position as a hub for asset management
London, UK — MFA supported the Dubai Financial Services Authority’s (DFSA)
efforts...
2 weeks ago
